Homework Answers
Rate of Return = 8.00%
Inflation Risk Premium = 2.45%
Real Risk-free Rate = 2.00%
Liquidity Risk Premium = 0.75%
Maturity Risk Premium = 0.95%
Rate of Return = Real Risk-free Rate + Inflation Risk Premium +
Liquidity Risk Premium + Maturity Risk Premium + Default Risk
Premium
8.00% = 2.00% + 2.45% + 0.75% + 0.95% + Default Risk Premium
8.00% = 6.15% + Default Risk Premium
Default Risk Premium = 1.85%
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