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The real rate of interest is currently 3%, the inflation expectation and risk premiums for a number of securities follow. Inflation expectations Security Premiums Risk

The real rate of interest is currently 3%, the inflation expectation and risk premiums for a number of securities follow.

Inflation expectations
Security Premiums Risk Premium
A 6% 3%
B 9

2

C 8 2
D 5 4
E 11 1

A. Find the risk-free rate of interest, RF that is applicable to each secuirty.

B. Although not noted, what factor must be the case of the differing risk-free rates foind in part a?

C. Find the nominal rate of interest for each security.

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