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The real risk-free rate (r*) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 7.50% per year for
The real risk-free rate (r*) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 7.50% per year for each of the next three years and 6.30% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.10 x (t-1)%, where t is the security's maturity. The liquidity premium (LP) on all Harrington Horticulture Co.'s bonds is 0.60%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury 0.60% 0.80% 1.05% 1.45%
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