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A company's 6-year bonds are yielding 8.85% per year. Treasury bonds with the same maturity are yielding 4.01% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium and the maturity risk premium are the same for all maturities irrespective of the issuer. If the liquidity premium is 0.47%, what is the default risk premium on the corporate bonds? State your answer as a percentage to two decimal places. Do not include the % symbol.

A company's 6-year bonds are yielding 8.85% per year. Treasury bonds with the same maturity are yielding 4.01% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium and the maturity risk premium are the same for all maturities irrespective of the issuer. If the liquidity premium is 0.47%, what is the default risk premium on the corporate bonds? State your answer as a percentage to two decimal places. Do not include the % symbol.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A company's 6-year bonds are yielding 8.85% per year. Treasury bonds with the same maturity are yielding 4.01% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium and the maturity risk premium are the same for all maturities irrespective of the issuer. If the liquidity premium is 0.47%, what is the default risk premium on the corporate bonds? State your answer as a percentage to two decimal places. Do not include the % symbol.
Transcribed Image Text:A company's 6-year bonds are yielding 8.85% per year. Treasury bonds with the same maturity are yielding 4.01% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium and the maturity risk premium are the same for all maturities irrespective of the issuer. If the liquidity premium is 0.47%, what is the default risk premium on the corporate bonds? State your answer as a percentage to two decimal places. Do not include the % symbol.
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