If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.
A) 2.0%
B) 2.5%
C) 3.0%
D) 1.5%

Question

Quizplus · Accepted Answer

The inflation premium is the difference between the nominal rate of interest and the real rate of interest. In this case, the nominal rate of interest is 10% and the real rate of interest is 3%, so the inflation premium is 10% - 3% = 7%.

If the Nominal Rate of Interest Is 10%, the Real