Suppose 10-year T-bonds have a yield of 4.30% and 10-year corporate bonds yield 7.35%. Also, corporate bonds have a 0.75% liquidity premium versus a zero. liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

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12. Suppose 10-year T-bonds have a yield of 4.30% and 10-year corporate bonds yield
7.35%. Also, corporate bonds have a 0.75% liquidity premium versus a zero
liquidity premium for T-bonds, and the maturity risk premium on both Treasury
and corporate 10-year bonds is 1.15%. What is the default risk premium on
corporate bonds?
Transcribed Image Text:12. Suppose 10-year T-bonds have a yield of 4.30% and 10-year corporate bonds yield 7.35%. Also, corporate bonds have a 0.75% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
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