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ment: Module 3 Homework as Problem 6.04 (Default Risk Premium) Save SEME Assement for Grading Check My Work (3 remaining) eBo
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Answer #1

Yield of Treasury bond = 4.50%

Yield of Corporate bond = 8.75%

Liquidity premium on corporate bond = 0.35%

Thus,

Default risk premium on Corporate bond would be:

= Yield of Corporate Bond - Yield of Treasury Bond - Liquidity Premium

= 0.0875 -0.045 -0.0035

= 0.039

= 3.90%

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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