Explore BrainMass

Explore BrainMass

    Real risk-free rate of return

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    You read in The Wall Street Journal that 30-day T- bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

    Inflation premium 3.25%
    Liquidity premium 0.6%
    Maturity risk premium 1.8%
    Default risk premium 2.15%

    On the basis of these data, what is the real risk-free rate of return?

    © BrainMass Inc. brainmass.com June 4, 2020, 12:29 am ad1c9bdddf
    https://brainmass.com/business/modified-internal-rate-of-return/real-risk-free-rate-of-return-341422

    Solution Preview

    On the basis of these data, what is the real risk- free rate of return?

    k = k* + IP + DRP + LP + MRP
    where
    k = return on a debt security ...

    Solution Summary

    Calculates real risk-free rate of return.

    $2.19

    ADVERTISEMENT