BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

Solutions

Chapter
Section
BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

DEFAULT RISK PREMIUM A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?

Summary Introduction

To identify: The default risk premium.

Default Risk Premium: A premium, which is paid by the borrower to its lender in the form of compensation of lender’s money in the regards of default risk is known as default risk premium.

Explanation

Solution:

The items required for the calculation of default risk are corporate yield, Treasury bond yield and liquidity premium.

Given,

The corporate bond yield is 8%.

The Treasury bond yield is 6%.

The liquidity premium is 0.5%.

Formula to calculate the default risk premium derives from the formula of corporate bond yield,

CorporateBondYield=TreasuryBondYield+LP+DRPDRP=CorporateBondYield(TreasuryBondYield+LP)

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

FOREIGN CAPITAL BUDGETING Solitaire Machinery is a Swiss multinational manufacturing company. Currently, Solita...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Identify and describe the major types of markets.

Foundations of Business (MindTap Course List)

What is meant by the garnishment of wages?

PAYROLL ACCT.,2019 ED.(LL)-TEXT

Why are units shipped used to calculate the value-stream product cost?

Cornerstones of Cost Management (Cornerstones Series)