## Eleanor Burns Is Attempting To Find The Nominal Rate Of Interest For Each Of Two Securities

a. On the same set of axes, draw the yield curve at each of the three given times.

b. Label each curve in part a with its general shape (downward-sloping, upward-sloping, flat).

c. Describe the general inflationary and interest rate expectation existing at each of the three times.

Q2Q Risk-free rate and risk premiums The real rate of interest is currendy 3%;

the inflation expectation and risk premiums for a number of securities follow.

i V!: 1 '^lJ;-j 'J' vÎQ^I^^P^^r*^*?*?'" V-f^A:l'Ml:r- Vv-'ï": ^ jÎ : -C-':— ^ r '";■ 1

a. Find the risk-free raté of interest, Rp, that is applicable to each security.

b. Although not noted, what factor,must be the cause of the differing risk-free rates found in part a?

c. Find the nominal rate of interest, for each security.

Risk premiums Eleanor Burns is attempting to find the nominal rate of interest for each of two securities—A and B—issued by different firms at the same point in time. She has gathered the following data:

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### Responses

• Cosimo
What factor must be the cause of the different riskfree rates?
7 years ago
• medhane
What factor must be the cause of the differing risk free rates?
7 years ago
• yvonne
What factor must be the cause of differing riskfree rates?
7 years ago
• estella
What factor must be the cause of the differing riskfree rates found in part a?
7 years ago
• aamos hanski
Is attempting to find the nominal rate of interest?
6 years ago