1. You are estimating the required rate of return for a particular investment. Which of the following premiums are you least likely to consider?

A. Inflation premium
B. Maturity premium
C. Nominal premium

2. A three-year CD offers a stated annual interest rate of 10 percent compounded quarterly. Given an initial investment of $80,000, which of the following is most likely to be the value of the CD at maturity?

A. $86,151
B. $86,628
C. $107,591

3. Given below is information about a security whose nominal interest rate is 15%:

  • The real risk free rate of return is 3.5%
  • The default risk premium is 3%
  • The maturity risk premium 4%
  • The liquidity risk premium is 2%

An investor wants to determine the inflation premium in the security’s return. The inflation premium is closest to:

  1. 2.5%.
  2. 4.0%.
  3. 9.0%.


Answers: SelectShow

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