What is the risk free real rate of return?
1) You read in the Wall Street Journal that 30 day U.S. treasury bills are currently yielding 8%. Your brother in law, a broker, and a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 5.0%
Liquidity premium = 1.0%
Maturity risk premium = 2.0%
Default risk premium = 2.0%
Based on the data, what is the risk free real rate of return?© BrainMass Inc. brainmass.com June 3, 2020, 10:49 pm ad1c9bdddf
The determinants of interest rates are:
k = k* + IP + DRP + LP + MRP
k = required return on a debt ...
Computes the risk free real rate of return when data on inflation premium, liquidity premium, maturity risk premium and default risk premium are given.