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On the first day of your summer internship, you've been assigned to work with the Chief Financial Officer ( CFO ) of SanBlas Jewels Inc.

On the first day of your summer internship, you've been assigned to work with the Chief Financial Officer(CFO) of SanBlas Jewels Inc. Not knowing how well trained you are, the CFO has decided to test your understanding of interest rates. Specifically, she asks you to provide a reasonable estimate of the nominal interest rate for a new issue of AAA-rated bonds to be offered by SanBlas Jewels Inc. The final format that the chief financial officer of SanBlas Jewels has requested is that of equation(2-1) in the text:
Nominal interest rate equals Start 2 By 1 Matrix 1st Row 1st Column real risk dash free interest rate plus inflation premium plus default dash risk premium 2nd Row 1st Column plus maturity dash risk premium plus liquidity dash risk premium EndMatrixNominal interest rate= real risk-free interest rate+inflation premium+default-risk premium +maturity-risk premium+liquidity-risk premium
Some agreed-upon procedures related to generating estimates for key variables in equation(2-1) follow.
a. The current3-month Treasury bill rate is 3.073.07percent, the30-year Treasury bond rate is 5.365.36percent, the30-year AAA-rated corporate bond rate is 6.796.79percent, and the inflation rate is 2.372.37 percent.
b. The real risk-free rate of interest is the difference between the calculated average yield on3-month Treasury bills and the inflation rate.
c. The default-risk premium is estimated by the difference between the average yields on AAA-rated bonds and30-year Treasury bonds.
d. The maturity-risk premium is estimated by the difference between the average yields on30-year Treasury bonds and3-month Treasury bills.
e. SanBlas Jewels' bonds will be traded on the New York Bond Exchange, so the liquidity-risk premium will be slight. It will be greater than zero, however, because the secondary market for the firm's bonds is more uncertain than that of some other jewelry sellers. It is estimated at 77 basis points. A basis point is one one-hundredth of 1 percent.
Now place your output into the format of equation(2-1) so that the nominal interest rate can be estimated and the size of each variable can also be inspected for reasonableness and discussion with the CFO. (round two decimal points)

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