The real risk-free rate, r*, is 1.4%. Inflation is expected to average 1.2% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

The real risk-free rate, r*, is 1.4%. Inflation is expected to average 1.2% a year for the next 4 years, after which time inflation is expected to average 4.3% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.7%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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