You read in The Wall Street Journal that 30-day T-bills currently are yielding 8 percent.Your brother-in-law,a broker at Kyoto Securities,has given you the following estimates of current interest rate premiums:
Inflation premium
5%Liquidity premium
1%Maturity risk premium
2%Default risk premium
2%Based on these data,the real risk-free rate of return is

Question

Quizplus · Accepted Answer

To find the real risk-free rate of return, we need to subtract the inflation premium from the 30-day T-bill yield, as the T-bill yield includes the inflation premium. Therefore, the real risk-free rate of return is 8% - 5% = 3%. The other premiums are not relevant for determining the real risk-free rate of return.

You Read in the Wall Street Journal That 30-Day T-Bills