Problem 1 Real RiskFree Rate Current 30day Tbills are yieldi

Problem 1: Real Risk-Free Rate

Current 30-day T-bills are yielding 3.5 percent. Your accountant provided you with these interest rate premiums:

·       IP = 1.5%

·       LP = 0.6%

·       MRP = 1.8%

·       DFP = 2.15%

What is the real risk-free rate of return based on this data?

Solution

Answer

the real risk free rate of return based on this data

= nominal rate of return - IP

= 3.5 % - 1.5 %

= 2.0 %