1 & 2.

t and Debt Consider the following values for the components that influence interest rates: "RP" Risk Premium ) kPR-2.0% ; LRP-0.75% ; MRP 1.5% ; DRP 1.25% ; INFL 2.25% (1) What is the required rate of return and expected interest rate for a credit arrangement (a bank loan or bond security) with these values? (a) 7.75% (b) 4.25% (c) 6.50% (d) 5.50% (e) 2.75% (f) 2.0% (2) If this was a U.S. government (Treasury) bond but all of the relevant values remained the same, what would the expected yield/rate likely be? (a) 7.75% (b) 4.25% (c) 6.50% (d) 5.50% (e) 5.75% (f) 2.0% (3) What would be the (nominal) Risk-Free rate ( KRE) associated with this bond or loan? (a) 7.75% (b) 4.25% (c) 6.50% (d) 5.50% (e) 2.75% (f) 2.0% (4) What is the total added yield required for all sources of risk for this debt? (a) 2.25% (b) 5.75% (c) 2.0% (d) 2.75% (e) 3.5% (5) Price Inflation is expected to be 2.0% for the next three years, 2.5% for the following four years and then 3.0% for the next three years. For a bond with a ten year maturity, what is the expected inflation rate premium that contributes to the bond's overall return/yield? (a) 2.0% (b) 2.25% (c) 2.5% (d) 2.75% (e) 3.0%