Solved: Investment in u.s. treasury bond, Finance Basics

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Investment in u.s. treasury bond

Problem:

You are considering an investment in U.S. Treasury bond but are not sure what rate of interest it should pay. Assume that the real risk-free rate of interest is 1.5%; inflation is expected to be 4.5%; that maturity risk premium is 5.0%; and the default risk premium for AAA rate corporate bonds is 4.0%. What rate of interest should the U.S. Treasury bond pay?

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Finance Basics: Investment in u.s. treasury bond

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