The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, 5 in year 3 and then 3.5% thereafter. The liquidity premium for non-liquid assets amoutns to an average of 1.1%The maturity risk premium is estimated to be 0.0005 x (t - 1), where t = number of years to maturity. The average default risk premium for corporate bonds is 2%. What is the nominal interest rate on a highly liquid 7-year Treasury security?

Answer rating: 100% (QA)

To calculate the nominal interest rate on a highly liquid 7year Treasury security we can use the Fis... View the full answer