Dakota Corporation I5-year bonds have an equilibrium rate of return of 8 percent For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 3.50 percent The security's liquidity risk premium is 0.25 percent and maturity risk premium is O.85 percent The security has no special covenants Calculate the bond's default risk premium.

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.