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QUESTION
You require a risk premium of 3.5 percent on an investment in a company. The pure rate of interest in the market is 2.3 percent and the inflation...
You require a risk premium of 3.5 percent on an investment in a company. The pure rate of interest in the
market is 2.3 percent and the inflation premium is 3 percent. US Treasury bills are risk free. What should be
the yield of the US Treasury bills? Use exact formulation. (Hint: Note that the risk premium for the US
Treasury bills is zero!)
