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You are considering an investment in a? AAA?rated? U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that

You are considering an investment in a?

AAA?rated?

U.S. corporate bond but you are not sure what rate of interest it should pay. Assume that the real?

risk?free?

rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and, the default risk premium for AAA rated corporate bonds is 3.5%. What rate of interest should the U.S. corporate bond pay?

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