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?
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:
Tomorrow’s questions will be on the topic of R06 Discounted Cash Flow Applications.