Problem:
A particular security's default risk premium is 6 percent. For all securities the inflation risk premium is 3 percent and the real interest rate is 2.5 percent. The security's liquidity risk premium is 1 percent and maturity risk premium is 2 percent. The security has no special covenants.
Required:
What is the security's equilibrium rate of return?
Note: Please show how you came up with the solution.