Interest Rate Components | CFA Level 1 - AnalystPrep

Risk Exposure Definition, Formula & Calculation

SOLVED: Suppose the real risk-free rate is 3.25%, the average future inflation rate is 4.35%, and a maturity risk premium of 0.07% per year to maturity applies to both corporate and T-bonds, i.e., MRP = 0.07%(t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 2.50% apply to A-rated corporate bonds but not to T-bonds. How much higher would the rate of return be on a 10-year A-rated corporate bond than on a 5-year Treasury b

RRR

If the risk-free rate is 2.2 percent, the inflation rate is 1.9 percent, and the market rate of return is 6.8 percent, what is the amount of the risk premium on a U.S. Treasury bill?

SOLVED: Assume that the real risk-free rate is 2 percent and that the maturity risk premium is zero. If the 1 -year bond yield is 5 percent and a 2 -year bond (of similar risk) yields 7 percent, what is the 1 -year interest rate that is expected for Year 2 ? What inflation rate is expected during Year 2 ? Comment on why the average interest rate during the 2 -year period differs from the 1 -year interest rate expected for Year 2.

Assume that the risk-free rate is 5 percent and the market risk premium is 6 percent. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2 ? | Numerade