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Unit 7 1. You are given the following data: rreal risk-free rate - 4% Constant inflation premium Maturity risk premium -7% - 1% 3% Default
Unit 7 1. You are given the following data: rreal risk-free rate - 4% Constant inflation premium Maturity risk premium -7% - 1% 3% Default risk premium for AAA bonds Liquidity premium for long-term T-bonds 2% Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. Given these conditions, the nominal risk-free rate for T-bills is and the rate on long-term Treasury bonds is a. 4%; 14% b. 4%; 15% c. 11%; 14% d. 11%; 15% e. 11%; 17%
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