A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 3 percent. The security's liquidity risk premium is 5 percent and maturity risk premium is 4 percent. The security has no special covenants. What is the security's equilibrium rate of return?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A particular security's default risk premium is 1
percent. For all securities, the inflation risk
premium is 2 percent and the real interest rate
is 3 percent. The security's liquidity risk
premium is 5 percent and maturity risk
premium is 4 percent. The security has no
special covenants.
What is the security's equilibrium rate of
return?
Transcribed Image Text:A particular security's default risk premium is 1 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 3 percent. The security's liquidity risk premium is 5 percent and maturity risk premium is 4 percent. The security has no special covenants. What is the security's equilibrium rate of return?
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