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Martina Navola is a successful TV actress and you are her financial manager. Lately she is intending to invest in some fixed income securities. Her
Martina Navola is a successful TV actress and you are her financial manager. Lately she is intending to invest in some fixed income securities. Her dilemma is about different levels of interest rates as what factors determine those levels? She is asking you to respond to the following details: 1. What are the most essential factors that differentiate the level of interest rates in an economy? 2. How risk-free real return is different than nominal risk free return and how these two rates can be measured? 3. What do the business magazines mean by the following terms: (1) Inflation Premium (2) Default Risk Premium (3) Liquidity Premium (4) Maturity Risk Premium (MRP). 4. Which of the above premiums determine the return on: (1) short-term government bonds (2) long-term government bonds (3) short-term corporate securities (4) long-term corporate securities
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