a particular security’s default risk premium is 4 percent. For all securities th

Question

a particular security’s default risk premium is 4 percent. For all securities the inflation risk premium is 3.65 percent and the real risk-free rate is 7.30 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return a particular security’s default risk premium is 4 percent. For all securities the inflation risk premium is 3.65 percent and the real risk-free rate is 7.30 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return a particular security’s default risk premium is 4 percent. For all securities the inflation risk premium is 3.65 percent and the real risk-free rate is 7.30 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return

Explanation / Answer

equillibrium rate of return = real risk free rate + inflation risk premium + default risk premium + liquidity risk premium + maturity risk premium.

=> 7.30% + 3.65% + 4% + 0% +0%

=>14.95%

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