A company's S-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 5.4% per year, and the real risk-free rate (r) is 3.05%. The average inflation premium is 1.95%, 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 0.6%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
A company's S-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 5.4% per year, and the real risk-free rate (r) is 3.05%. The average inflation premium is 1.95%, 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 0.6%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
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:A company's S-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 5.4% per year, and the real risk-free rate (r) is 3.05%. The average
inflation premium is 1.95%, 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 0.6%, what is the
default risk premium on the corporate bonds? Round your answer to two decimal places.
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