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a particular security's default risk premium is 3 percent. for all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. the security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. the security has no special covenants. what is the security's equilibrium rate of return?

Respuesta :

Here, security's equilibrium rate of return:

= Real interest rate + inflation risk premium + default risk premium + liquidity risk premium + maturity risk premium

= 2.25% + 2% + 3% + 0.75% + 0.90%

= 8.90%

What is equilibrium rate of return?


Equilibrium on the asset market occurs when supply and demand are equal. Economic theory proposes two equal requirements for the equilibrium of the asset market: Return percentage The rate of return is equivalent to the interest rate on the market; Actual Value The present value of the existing and upcoming payments is the same as the asset's price.

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