If 8-year T-bonds have a yield of 6.36%, 8-year corporate bonds yield 8.36%, the maturity risk premium on all 8-year bonds is 1.22%, and corporate bonds have a 0.35% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
If 8-year T-bonds have a yield of 6.36%, 8-year corporate bonds yield 8.36%, the maturity risk premium on all 8-year bonds is 1.22%, and corporate bonds have a 0.35% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the 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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If 8-year T-bonds have a yield of 6.36%, 8-year corporate bonds yield 8.36%, the maturity risk premium on all 8-year bonds is 1.22%, and corporate bonds have a 0.35% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
Group of answer choices
1.77%
1.75%
1.80%
1.65%
1.62%
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