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Paper Topic:

Market rate of interest

Running head : MARKET RATE OF INTEREST

Market Rate of Interest

Student Name

Institution 's Name Market Rate of Interest

Formula

r r IP DRP LP MRP Where

r Required rate of return on a debt security : This is the return the bond buyers demand based on the breakup presented in the formula

r Real risk-free rate : This is equal to [ (1 Interest (1 Inflation )-1] Real Rate : Real rate account for the inflation impact when measuring the risk free return

IP Inflation premium : The adjustment made for the

general price increase in the economy

DRP Default risk premium : The risk that the issuer would default on their payment

LP Liquidity premium : The premium for lack of buyers and /or sellers

MRP Maturity risk premium : The longer the maturity , the longer the risk associated with volatile prices , thus investors demand a premium for holding that debt

Details of NEW PLAN EXCEL RLTY TR INC ' are (Yahoo Finance

Price : 98 .70

Coupon : 4 .500

Maturity Date : 1-Feb-2011

Yield to Maturity : 7 .021

Current Yield : 4 .559

Fitch Ratings : CCC

Coupon Payment Frequency : Semi-Annual

First Coupon Date : 1-Aug-2004

Type : Corporate

Callable : No

Y

Breakup

Real Risk Free Rate is [ (1 0 .18 (1 2 .02 )]-1 -0 .61

Inflation premium is 2 .02

Default risk premium is 2 .83

Liquidity premium is 1 .37

Maturity risk premium is 1 .411

Required rate of return on a debt security rb a b c d e

Rb -0 .61 2 .02 2 .83...

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