The Habender Company just issued a two-year bond at 12%. Inflation is expected to be 4% next

Question:

The Habender Company just issued a two-year bond at 12%. Inflation is expected to be 4% next year and 6% the year after. Habender estimates its default risk premium at about 1.5% and its risk premium at about .5%. Because it’s a relatively small and unknown firm, its liquidity risk premium is about 2% even on relatively short debt like this. What pure interest rate is implied by these assumptions?

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...