Assume you make the following investments: A $10,000 investment in a 10-year T-bond that yields 6.00%, and a $20,000 investment in a 10-year corporate bond with an BBB rating and a yield of 8.30%. Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.50%, what is your estimate of the corporate bond's default risk premium? A.) 2.30%? B.) 3.06%? C.) 1.80%? D.) 2.52%?
Assume you make the following investments: A $10,000 investment in a 10-year T-bond that yields 6.00%, and a $20,000 investment in a 10-year corporate bond with an BBB rating and a yield of 8.30%. Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.50%, what is your estimate of the corporate bond's default risk premium? A.) 2.30%? B.) 3.06%? C.) 1.80%? D.) 2.52%?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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Assume you make the following investments: A $10,000 investment in a 10-year T-bond that yields 6.00%, and a $20,000 investment in a 10-year corporate bond with an BBB rating and a yield of 8.30%. Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.50%, what is your estimate of the corporate bond's default risk premium?
A.) 2.30%?
B.) 3.06%?
C.) 1.80%?
D.) 2.52%?
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