doubt in a topic test question.
Q. Which of Chan’s comments regarding components of the discount rate is most likely correct?
- the additional return required from investing in a nominal default-free investment for investing in a real default-free investment;
- the expected return on an inflation-linked bond issued by the government of a developed country; and
- the increased premium for more actively traded securities relative to less actively traded securities the answer given is 2. can someone explain why 1,3 is wrong? its given risk premium and real risk free rates are inputs for present value.