Question 2: Given the interest rate determinants information below: Scenario A Scenario B Average expected inflation (IP) 4% 8% Risk-free rate of return (Rf) 1.75% 3% Default Risk Premium (DRP) 1.1% 0.6% Maturity risk premium (MRP) .008 x (t – 1) .006 x (t – 1) Determine the Nominal interest rate (INOM) on 10 years’ (t) security for both the scenarios to decide whether Scenario A or Scenario B is better.

Question 2: Given the interest rate determinants information below: Scenario A Scenario B Average expected inflation (IP) 4% 8% Risk-free rate of return (Rf) 1.75% 3% Default Risk Premium (DRP) 1.1%...

Question 2:
Given the interest rate determinants information below:

	Scenario A	Scenario B
Average expected inflation (IP)	4%	8%
Risk-free rate of return (Rf)	1.75%	3%
Default Risk Premium (DRP)	1.1%	0.6%
Maturity risk premium (MRP)	.008 x (t – 1)	.006 x (t – 1)

Determine the Nominal interest rate (I_NOM) on 10 years’ (t) security for both the scenarios to decide whether Scenario A or Scenario B is better.

Jun 10, 2022