Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. For all securities,...
Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. For all securities, the inflation risk premium is 1.40 percent and the real risk-free rate is 2.80 percent. The security’s liquidity risk premium is 0.50 percent and maturity risk premium is 1.10 percent. The security has no special covenants. Calculate the bond’s default risk premium. (Round your answer to 2 decimal places.)
Homework Answers
Nominal Yield on bond = Real risk free rate + Inflation premium + Maturity risk premium + Liquidity premium + Default risk premium
9% = 2.80% + 1.40% + 1,10% + 0.50% + Default risk premium
Default risk premium = 3.20%
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Dakota Corporation 15-year bonds have an equilibrium rate of
return of 9 percent. For all securities,...
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