If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.
A)2.0%
B)2.5%
C)3.0%
D)none of the above

Question

Quizplus · Accepted Answer

The inflation premium is equal to the nominal rate of interest minus the real rate of interest, the default premium, the liquidity premium, and the maturity premium. Therefore, the inflation premium is 10% - 3% - 3% - 0.5% - 1.5% = 2.0%.

If the Nominal Rate of Interest Is 10%, the Real