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Eleanor Burns is attempting to find the nominal rate of interest for each of two securities'A and B'issued by different

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Eleanor Burns is attempting to find the nominal rate of interest for each of two securities'A and B'issued by different firms at the same point in time. She has gathered the following data:


Eleanor Burns is attempting to find the nominal rate of


a. If the real rate of interest is currently 2%, find the risk-free rate of interest applicable to each security.
b. Find the total risk premium attributable to each security's issuer and issue characteristics.
c. Calculate the nominal rate of interest for each security. Compare and discuss yourfindings.

Transcribed Image Text:

Characteristic Security A 3 years 9.0% Security B 15 years 7.0% Time to maturity Inflation expectation premium Risk premium for: Liquidity risk Default risk Maturity risk 1.0% 1.0% 0.5% 0.5% 1.0% 2.0% 1.5% 1.5% Other risk

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a R Ft r IP t Security A R F 3 2 9 11 Security B R F 15 2 7 9 b Risk premium RP default risk maturi…View the full answer


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Principles Of Managerial Finance

Principles Of Managerial Finance

ISBN: 978-0136119463

13th Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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Question Details
Chapter # 6
Section: Problems
Problem: 9
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Question Posted: March 05, 2012 04:51:36
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