BAF 201 - CHAPTER 2 SAMPLES OF INTEREST RATE DETERMINATION - B 1. Jim Dandy Grills needs to borrow money to expand their manufacturing facility. Since the amount they need is greater than any financial institution will lend, they will try to float a bond issue. Calculate the nominal interest rate (stated interest rate) to be used for this issue. The nominal rate is the rate to be paid to investors over the 15-year life of the bonds. Since they are a small company, the liquidity premium is estimated to be 20 basis points. Information pertinent to various risk premiums and inflation is as follows: 3-month Treasury Bills 15-year Treasury Bonds Aaa Corporate Bonds Inflation Rate 3.66% 5.04% 6.11% 2.36% Use the formula: k-k* + IRP+ DRP + MP +LP Show and label your work. 2. If the nominal interest rate (k) for an investment ie 5 450l and the