Question

If the​ 10-year Treasury bond rate is 5.3 %​, the inflation premium is 2.8 %​, and the​ maturity-risk premium on​ 10-year Treasury bonds is 0.2 %​, assuming that there is no​ liquidity-risk premium on these​ bonds, what is the real​ risk-free interest​ rate?

Answer 1

2.3%

Step-by-step explanation:

If nominal interest rate (10-year Treasury bond rate) = real risk free interest rate + inflation premium + default risk premium + maturity risk premium + liquidity risk premium

Then real risk free interest rate = nominal interest rate - inflation premium - default risk premium - maturity risk premium - liquidity risk premium

real risk free interest rate = 5.3% - 2.8% - 0% - 0.2% - 0% = 2.3%