NikkiG's Corporation's 10-year bonds are currently yielding a return of 7.05 percent. The expected inflation premium is 1.10 percent annually and the real risk-free rate is expected to be 2.10 percent annually over the next ten years. The liquidity risk premium on NikkiG's bonds is 0.25 percent. The maturity risk premium is 0.40 percent on 2-year securities and increases by 0.07 percent for each additional year to maturity. Calculate the default risk premium on NikkiG's 10-year bonds. (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Default risk premium 2.20%
NikkiG's Corporation's 10-year bonds are currently yielding a return of 7.05 percent. The expected inflation premium is 1.10 percent annually and the real risk-free rate is expected to be 2.10 percent annually over the next ten years. The liquidity risk premium on NikkiG's bonds is 0.25 percent. The maturity risk premium is 0.40 percent on 2-year securities and increases by 0.07 percent for each additional year to maturity. Calculate the default risk premium on NikkiG's 10-year bonds. (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Default risk premium 2.20%
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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Transcribed Image Text:NikkiG's Corporation's 10-year bonds are currently yielding a return of 7.05 percent. The expected inflation premium is 1.10 percent
annually and the real risk-free rate is expected to be 2.10 percent annually over the next ten years. The liquidity risk premium on
NikkiG's bonds is 0.25 percent. The maturity risk premium is 0.40 percent on 2-year securities and increases by 0.07 percent for each
additional year to maturity. Calculate the default risk premium on NikkiG's 10-year bonds. (Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
Default risk
premium
2.20%
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