The real risk-free rate is 2.36%, inflation is expected to be 4.75% this year, and the maturity risk premium is zero. What is the equilibrium rate of return on a 1-year Treasury security? (Express your answer as a percent and round your final answer to 2 decimal places.)

The real risk-free rate is 2.36%, inflation is expected to be 4.75% this year, and the maturity risk premium is zero. What is the equilibrium rate of return on a 1-year Treasury security? (Express your answer as a percent and round your final answer to 2 decimal places.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 18P

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Question

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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