You Read in the Wall Street Journal That 30-Day T-Bills

Multiple Choice

You read in The Wall Street Journal that 30-day T-bills are currently yielding 8 percent. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate premiums:
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Inflation premium           5%
Liquidity premium          1%
Maturity risk premium    2%
Default risk premium      2%
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Based on these data, the real risk-free rate of return is:

A) 0 percent.
B) 1 percent.
C) 2 percent.
D) 3 percent.
E) 4 percent.