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The real rate of interest has been estimated to be 3 percent, and the expected long-term annual inflation rate is 7 percent.
a. What is the current risk-free rate of return on 1-year Treasury bonds?
b. If the yield on 10-year U.S. Treasury bonds is 12 percent, what is the maturity risk premium between a 10-year bond and a 1-year bond?
c. If American Airlines bonds, scheduled to mature in 10 years, currently sell to yield 13 percent, what is the default risk premium on these bonds?
d. If investors in the common stock of American Airlines require a 16 percent rate of return, what is the seniority risk premium on American's common stock?
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The evaluation of performance of business units in either Tesco or Carrefour using financial and non-financial measures.
The excess return of the market over the risk-free rate is 6% and the volatility of the market index is 18%. What is the market price of risk for the company's revenue?
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