5 Year Treasury Notes are currently yielding 6.00%, and you have found the following interest premium that relate to this investment: • Inflation premium 1.75% Liquidity premium 0.00% • Default risk premium 0.00% Maturity risk premium 1.50% Given the above information, what is the real risk-free rate of return?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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5 Year Treasury Notes are currently yielding 6.00%, and you have found the following
interest premium that relate to this investment:
• Inflation premium 1.75%
• Liquidity premium 0.00%
• Default risk premium 0.00%
• Maturity risk premium 1.50%
Given the above information, what is the real risk-free rate of return?
Transcribed Image Text:5 Year Treasury Notes are currently yielding 6.00%, and you have found the following interest premium that relate to this investment: • Inflation premium 1.75% • Liquidity premium 0.00% • Default risk premium 0.00% • Maturity risk premium 1.50% Given the above information, what is the real risk-free rate of return?
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The real risk-free rate is the rate of return of an investment without any risk. This is the return on the safest investment that an investor can make.  Generally, the short-term T-Bill rate is referred to as the risk-free rate. 

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