1. “Since firms do not raise money in the secondary market, the secondary market provides no benefit to the financial system.” Identify whether or not this statement is accurate AND EXPLAIN WHY. * explanation needed for part A of question *
2. You know that the Yield-to-Maturity (interest rate) on a particular bond is 6.28%. You estimate that expected inflation over the life of the bond is expected to average 2.78%. The default risk premium for this bond is 2.20%. The maturity risk premium for this bond is 0.2%. The liquidity risk premium for this bond is 0.2%. There are no special characteristic premiums. Based on this, calculate the real rate of interest.