You Are Considering an Investment in a U

question 156

Multiple Choice

You are considering an investment in a U.S.Treasury 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.Treasury bond pay?

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

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Definitions:

Security Concerns

Issues or threats that could potentially harm the integrity, confidentiality, or availability of information or physical well-being of individuals.