Risk-free rate and risk premiums The real rate of interest is currently 3%; the infla- tion expectation and risk premiums for a number of securities follow. P6-8 Inflation expectation Security Risk premium Premium 6% 3% 2 2 D 5 4 E 11 1 a. Find the risk-free rate of interest, RE, that is applicable to each security. b. Although not noted, what factor must be the cause of the differing risk-free rates found in part a? c. Find the nominal rate of interest for each security. ABCA