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A particular securitys default risk premium is 450 percent

Determinants of Interest Rate for Individual Securities

A particular security's default risk premium is 4.50 percent. For all securities, the inflation risk premium is 3.50 percent and the real interest rate is 3.00 percent. The security's liquidity risk premium is 1.50 percent and maturity risk premium is 2.40 percent.

The security has no special covenants. What is the security's equilibrium rate of return?

Multiple Choice

29.80%
6.00%
2.98%
14.90%

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Finance Basics: A particular securitys default risk premium is 450 percent

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