The Real Rate of Interest Is Expected to Be 3

Multiple Choice

The real rate of interest is expected to be 3 percent and the expected rate of inflation for next year is expected to be 5.5 percent.If the default risk premium is 1.1 percentage points, and the seniority risk premium is 0.4 percentage points, what is the required return on a 1 year U.S.Treasury security?

A) 9.6%
B) 10.0%
C) 8.5%
D) 8.9%