What is the lowest common ground for the pricing of a debt instrument? Currently we utilize the formula Risk Free Rate + Expected Inflation + Default Risk Premium + Liquidity Premium + Maturity Premium = the Interest Rate you pay. In this format we all must FORCAST what inflation is GOING to be during the life/holding period of the instrument in question. The modeling of what the inflation adjusted rate will be on any given future day is a ‘Monte Carlo’ study of immense dimension. Presently the parties have chosen a capital formation method that is non-cooperative. The parties to the transaction are each attempting to be a better forecaster than the other side of the transaction. Each
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