What is the security equilibrium rate of return

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Problem 1: What is the definition of the term agency problem?

a. The difficulties that arise in professional baseball when players become free agents.

b. The difficulties that arise when a principle hires an agency to represent their company.

c. The difficulties that arise when a principle hires an agent and cannot fully monitor the agent's actions.

d. When a principle hires an agent and must monitor every move they make, because they have found the agent to be unethical.

Problem 2: A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 4.2 percent. The security's liquidity risk premium is 0.35 percent and the maturity risk premium is 0.95 percent. The security has no special covenants. What is the security's equilibrium rate of return?

a. 8.50 percent.

b. 6.05 percent.

c. 10.25 percent.

d. 9.90 percent.

Reference no: EM132833968

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