A company's 5-year bonds are yielding 7.4% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.80%. The average inflation premium is 2.50%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
A company's 5-year bonds are yielding 7.4% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.80%. The average inflation premium is 2.50%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 10P
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A company's 5-year bonds are yielding 7.4% per year. Treasury bonds with the same maturity are yielding 5.7% per year, and the real risk-free rate (r*) is 2.80%. The average inflation premium is 2.50%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.1%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
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