Question
If purchasing power (inflation) risk premium for five years is assumed to be 4%, annual purchasing power risk premium is %2, default risk premium is
If purchasing power (inflation) risk premium for five years is assumed to be 4%, annual purchasing power risk premium is %2, default risk premium is 3%, liquidity risk premium is 2%, maturity risk premium is 1%, and real risk-free rate of return is 3%; a) calculate & interpret nominal/quoted interest rate for a corporate bond maturing in 5 years. (10 points) b) calculate & interpret nominal/quoted interest rate for a government bond maturing in 5 years. (5 pts) c) calculate & interpret nominal/quoted interest rate for a commercial paper. (5 pts) d) calculate & interpret nominal/quoted interest rate for a treasury bill. (5 pts)
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