Real Risk-Free Rate
You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 3%
Liquidity premium = 0.5%
Maturity risk premium = 1.7%
Default risk premium = 2.75%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
%
Default Risk Premium
A Treasury bond that matures in 10 years has a yield of 5.5%. A 10-year corporate bond has a yield of 10%. Assume that the liquidity premium on the corporate bond is 0.55%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
%
Maturity Risk Premium
The real risk-free rate is 2.75%, and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 7.75%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.
%