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Real Risk-Free Rate
You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.4%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
Inflation premium = 2.75%
Liquidity premium = 1.1%
Maturity risk premium = 1.55%
Default risk premium = 2.3%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.
%
Expected Interest Rate
The real risk-free rate is 3%. Inflation is expected to be 2.25% this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Round your answer to two decimal places.
What is the yield on 3-year Treasury securities? Round your answer to two decimal places.
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Suppose a project financed via an issue of debt requires five annual interest payments of $12 million each year. If the tax rate is 35% and the cost of debt is 5%, what is the value of the interest rate tax shield? A firm requires an investment of $3..
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