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    Real risk-free rate of return

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    You read in the Wall Street Journal that 30-day US Treasury Bills are currently yielding 8%. Your brother in law, 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 this data, the real risk-free rate of return is:

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    Solution Summary

    The solution explains how to calculate the real risk-free rate of return