Determining rate of interest

Reference no: EM1334155

You are considering an investment in US Treasury bond but are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.5%; inflation is expected to be 4.5%; that maturity risk premium is 5.0%; and the default risk premium for AAA rate corporate bonds is 4.0%. What rate of interest should the US treasury bond pay?

Reference no: EM1334155

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