(Solution) - The Habender Company just issued a two year bond at 12 -(2025 Original AI-Free Solution)

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The Habender Company just issued a two-year bond at 12%. Inflation is expected to be 4% next year and 6% the year after. Habender estimates its default risk premium at about 1.5% and its maturity risk premium at about .5%. Because it?s a relatively small and unknown firm, its liquidity risk premium is about 2% even on relatively short debt like this. What pure interest rate is implied by these assumptions?