Determinants of interest rate for individual securities

Question

Problem:

A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent.

Requirement:

Question: The security has no special covenants. What is the security's equilibrium rate of return?

• 1.78%
• 3.95%
• 17.8%
• 8.90%

Note: Provide support for rationale.