Please solve these 2 problems 7. Problem 6.11 (Default Risk Premium)BAeBookA company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 4.5% per year, and the real risk-free rate (r*) is 2.25%. The average inflation premium is 1.85%, 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 1.2%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.% 8. Problem 6.17 (Interest Rate Premiums)BOeBookA 5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond yields 6.7%, and a 10-year corporate bond yields 8.1%. The market expects that inflation will average 2.8% over the next 10 years (IP10 = 2.8%). Assume that there is no maturity riskpremium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond hasthe same default risk premium and liquidity premium as the 10-year corporate bond described. What is the yield on this 5-year corporate bond? Round your answer to one decimal place.

Yield on corporate bonds depends on many risk factors involved and can be given by the following…

7. Problem 6.11 (Default Risk Premium) K eBook A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 4.5% per year, and the real risk-free rate (r) is 2.25%. The average inflation premium is 1.85%, and the maturity risk premium is estin (t-1) %, where t number of years to maturity. If the liquidity premium is 1.2%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

7. Problem 6.11 (Default Risk Premium) K eBook A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 4.5% per year, and the real risk-free rate (r) is 2.25%. The average inflation premium is 1.85%, and the maturity risk premium is estin (t-1) %, where t number of years to maturity. If the liquidity premium is 1.2%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

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 19P

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A company's 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk free rate (r*) is 2.3%. The average inflation premuim is 2.5% and the maturity risk premium is estimated to be 0.1X(t-1) % where t= the number of maturity. If the iquidity premium is 1% what is the default risk premium on the corporate bonds.? Please show formula and calculation. Do it in manual computation not in spreadsheet.