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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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