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 March 21, 2019, 8:36 pm ad1c9bdddf

Solution Preview

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

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

Solution Summary

Calculates real risk-free rate of return.