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Question
The following premiums apply to a 6-month bond: interest rate risk premium = 0.22 percent; real rate = 3.50 percent; default premium = 0.12 percent; inflation premium = 1.45 percent. What is the expected difference in nominal interest rates between a 6-month risky security and a 6-month, default-free security?A. 0.12 percent
B. 0.34 percent
C. 0.37 percent
D. 1.57 percent
E. 1.60 percent
Answer
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