The Following Premiums Apply to a 8-Month Bond: Interest Rate

question 1

Multiple Choice

The following premiums apply to a 8-month bond: interest rate risk premium = 0.32 percent; liquidity premium = 0.44 percent; default premium = 1.23 percent; inflation premium = 3.12 percent; real rate = 3.20 percent.What is the expected nominal interest rate on a 8-month risky security given these values?

• A)5.85 percent
• B)6.45 percent
• C)7.55 percent
• D)8.31 percent
• E)9.30 percent

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Definitions:

Concentration Ratio

An economic indicator that measures the market share of the largest firms within an industry, used to assess competitiveness.

Industry Output

The total production of goods and services by all firms in a specific industry.

Concentration Ratio

A measure indicating the market share of the largest firms in an industry to assess the degree of competition.

Breakfast Cereal Industry

The sector of the economy that specializes in the production, marketing, and sale of breakfast cereal products.