A. Write out the equation for the required interest rate on a debt security.

B. What is the difference between the real risk-free rate and the risk-free rate?

C. Do the interest rates on Treasury securities (Treasury bills, Treasury notes, and Treasury Bonds)

include a

DRP (Default Risk Premium)?

LP (Liquidity Premium)?

PRP (Price Risk Premium)?

CRP (Call Risk Premium)?

MP (Maturity Premium)?

Explain your answer.

D. Does the DRP incorporate only the probability of default? Explain your answer.

E. What is price risk? What types of debt securities have the largest price risk premium?