name

CBA FM TTH 3:00-4:30 p.m

a. Risk free rate of interest:

Security Premium Real Rate of Interest Risk-free rate of

interest
(Premium+Real
Rate of Interest)

A 6% 3% 9%

B 9% 3% 12%

C 8% 3% 11%

D 5% 3% 8%

E 11% 3% 14%

b. What factor must be the cause of the differing risk free rates found in part a?
The cause for different risk-free rates would be different maturity periods for each security at the
inflation rates are different.
c. Nominal rate of interest:

Security Premium Real Rate of Risk Premium Risk-free rate

Interest of interest
(Premium+Real
Rate of
Interest+Risk
Premium)

A 6% 3% 3% 12%

B 9% 3% 2% 14%

C 8% 3% 2% 13%

D 5% 3% 4% 12%

E 11% 3% 1% 15%