( Interest rate determination ) Given this information, what should the nominal

ID: 2812372 • Letter: #

Question

(Interest rate determination)

Given this information, what should the nominal rate of interest on Ford bonds maturing in 0-1 year, 1-2 years, 2-3 years, and 3-4 years be?

The nominal rate of interest on Ford bonds maturing in 0-1 year should be ____%. (Round to two decimal places.)

The nominal rate of interest on Ford bonds maturing in 1-2 years should be . ____%. (Round to two decimal places.)

The nominal rate of interest on Ford bonds maturing in 2-3 years should be _____%. (Round to two decimal places.)

The nominal rate of interest on Ford bonds maturing in 3-4 years should be ____%. (Round to two decimal places.)

Enter your answer in each of the answer boxes.

Nominal Interest Rate = Real Interest Rate + Inflation Premium + Default Risk Premium + Liquidity Risk Premium + Maturity Risk Premium

a). Nominal Interest Rate(0-1 Yr) = 3.7% + 3.3% + 2.3% + 0.03% + 0.07% = 9.40%

b). Nominal Interest Rate(1-2 Yr) = 3.7% + 3.3% + 2.3% + 0.03% + 0.45% = 9.78%

c). Nominal Interest Rate(2-3 Yr) = 3.7% + 3.3% + 2.3% + 0.03% + 0.65% = 9.98%

d). Nominal Interest Rate(3-4 Yr) = 3.7% + 3.3% + 2.3% + 0.03% + 0.20% = 9.53%

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