Discounted Cashflows
josh
September 23, 2015
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Question
Problem 6-2. Real risk-free rate
You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 3.25%
Liquidity premium = 0.6%
Maturity risk premium = 1.8%
Default risk premium = 2.15%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
