10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 9%, the maturity risk premium on all 10- ear bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T- onds, what is the default risk premium on the corporate bond? Select the correct answer. O a. 2.64% O b. 2.16% c.2.88% O d. 2.40%

10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 9%, the maturity risk premium on all 10- ear bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T- onds, what is the default risk premium on the corporate bond? Select the correct answer. O a. 2.64% O b. 2.16% c.2.88% O d. 2.40%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5P: Default Risk Premium A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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f10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 9%, the maturity risk premium on all 10-
ear bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-
Donds, what is the default risk premium on the corporate bond?
Select the correct answer.
O a. 2.64%
O b. 2.16%
Oc2.88%
d. 2.40%
e. 3.12%

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• 1. 3. 14 15 Kay Corporation's 5-year bonds yield 5.90% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* - 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP-(t-1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay's bonds? O Oa0.19% O O O b.0.25% O €0.20% 8.0.17% e. 0.25% O Dr Fran Day -Question 3 of 15 A-Z 1