QM Test 1 – Rates and Returns

An analyst estimates a real risk-free rate of $1.2\%$, expected inflation of $2.5\%$, a default risk premium of $1.0\%$, a liquidity premium of $0.6\%$, and a maturity premium of $0.7\%$. Using the building-block approach, the required return on the risky asset is closest to: