FIN 564 finance week 1 homework assignment in excel form

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1) A particular security's equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 3.5 percent. The security'... s liquidity risk premium is 0.25 percent and the maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security's default risk premium. (LG 2-6) I* = 8% IP = 1.75% RIR = 3.50% DRP = ? LRP = 0.25% MRP = 0.85% SCP = 0.00% The fair interest rate on a financial security is calculated as i* = IP + RIR + DRP + LRP + SCP + MRP 8% = 1.75% + 3.5% + DRP + 0.25% + 0% + 0.85% DRP = 8% - 1.75% - 3.5% - 0.25% - 0% - 0.85% DRP = 1.65% [Show More]

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