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Inflation is expected to be 5 in the bonds first year and 4

Riordan Services Inc. just issued a 2 year-bond at a 15% interest rate. Riordan's default risk premium has been estimated at 2.5%, it's liquidity risk premium is about 2%, and its maturity risk premium is 3%. Inflation is expected to be 5% in the bond's first year and 4% in its second year. What is the implied pure rate of interest?

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Finance Basics: Inflation is expected to be 5 in the bonds first year and 4

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Finance Basics: Inflation is expected to be 5 in the bonds first year and 4

Reference No:- TGS02709972

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