You Are Considering an Investment in a AAA-Rated U

question 99

Multiple Choice

You are considering an investment in a AAA-rated U.S.corporate bond but you are not sure what rate of interest it should pay.Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,the default risk premium for AAA rated corporate bonds is 3.5%.What rate of interest should the U.S.corporate bond pay?

• A) 8.5%
• B) 6.0%
• C) 5.0%
• D) 2.5%

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