Problem 6-2 Real Risk-Free Rate

You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.3%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

Inflation premium = 3.25%

Liquidity premium = 0.3%

Maturity risk premium = 2%

Default risk premium = 2.6%

On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.

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