Answered>Order 3908

hi – I am trying to calculate the spot rate on a treasury bill, can you help me understand the formula I should use?

You read in the Wall Street Journal (WSJ) that the spot rate on long-term Treasury bonds is 5 percent.  Your broker has given you the following estimates of current interest rate premiums:

                                                                        Inflation premium                                                       2 percent

                                                                        Maturity risk premium                                                3 percent

                                                                        Default risk premium                                      4 percent

Based on these data, what is the spot rate on Treasury bills?