Determinants of interest rate for individual securities

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Reference no: EM131444646

1. Determinants of Interest Rate for Individual Securities A particular security's default risk premium is 4.00 percent. For all securities, the inflation risk premium is 2.75 percent and the real interest rate is 3.25 percent. The security's liquidity risk premium is .95 percent and maturity risk premium is 1.25 percent.

The security has no special covenants. What is the security's equilibrium rate of return?

A-11.25%

B-8.20%

C-2.44%

D-12.20%

2. Taxable Equivalent Yield What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 33 percent marginal tax bracket? (Round your answer to 2 decimal places.)

A-1.49%

B-4.50%

C-13.64%

D-6.72%

Reference no: EM131444646

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