A Particular Security's Default Risk Premium Is 3 Percent

question 56

Multiple Choice

A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 4.2 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's equilibrium rate of return.

• A) 8.50 percent
• B) 6.05 percent
• C) 10.25 percent
• D) 9.90 percent

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