The Following Premiums Apply to a 3-Month Bond: Interest Rate

question 37

Multiple Choice

The following premiums apply to a 3-month bond: interest rate risk premium = 0.2 percent; real return = 1.9 percent; default premium = 0.8 percent; inflation premium = 1.4 percent.What is the expected nominal interest rate on a default-free security that has 3 months to maturity?

• A) 1.9 percent
• B) 2.0 percent
• C) 2.1 percent
• D) 3.3 percent
• E) 3.6 percent

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Definitions:

Standard Deviation

A measure of the distribution of data points around the mean, indicating how spread out the data points are.

Frequency Distribution

An organized tabulation of the number of instances that each value or category of a variable occurs in a data set.

GMAT Scores

Numerical scores resulting from taking the Graduate Management Admission Test, used by graduate business schools for admissions purposes.

Mean Score

A statistical metric representing the average value of a set of numbers.