Overview
I'm working on a mathematics multi-part question and need an explanation and answer to help me learn.
eBook Problem Walk-Through
You read in The Wall Street Journal that 30-day T-bills are currently yielding 4.2%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:
- Inflation premium = 2.50%
- Liquidity premium = 0.2%
- Maturity risk premium = 2.15%
- Default risk premium = 2.00%
On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.