You read in The Wall Street Journal that 30-day T-bills are currently yielding 8 percent. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums: ? Inflation premium 5% Liquidity premium 1% Maturity risk premium 2% Default risk premium 2% ? Based on these data, the real risk-free rate of return is:
A. 0 percent.
B. 1 percent.
C. 2 percent.
D. 3 percent.
E. 4 percent.
Answer: D
Business
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