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PROBLEMS SHOW YOUR WORK! 1. (4 points) A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2

PROBLEMS SHOW YOUR WORK!

1. (4 points) A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 3 percent. The security's liquidity risk premium is 5 percent and maturity risk premium is 4 percent. The security has no special covenants. What is the security's equilibrium rate of return?

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