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The inflation expectation and risk premium for a number of securities is presented on the following table: Security Inflation expectation premium Risk premium A 6%
The inflation expectation and risk premium for a number of securities is presented on the following table:
Security | Inflation expectation premium | Risk premium |
A | 6% | 3% |
B | 9 | 2 |
C | 8 | 2 |
D | 5 | 4 |
E | 11 | 1 |
The real rate of interest is currently 3%
a) Find de risk-free rate of interest , Rf, that is applicable to each security.
b)Find the nominal rate of interest for each security.
Note: Please show the answers and explain in words how you got to conclusions for better understanding ***
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