Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.85 percent, on 20-year Treasury bonds is 7.35 percent, and on a 20-year corporate bond is 8.70 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, what is the current rate on a 10-year corporate bond.

Determinants of Interest Rate for Individual Securities The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.85 percent, on 20-year Treasury bonds is 7.35 percent, and on a 20-year corporate bond is 8.70 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, what is the current rate on a 10-year corporate bond.

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 5P: Default Risk Premium A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate...

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