Homework Answers
Ans 35)
Default Risk Premium is the difference between Instrument interest rate and Risk free rate. Default risk premium is given to compensate for the default risk in an event to avoid the default on instrument
Hence Option B is correct.
Ans 34)
Market Risk Premium (MRP)is difference between interest rate of similar instrument with different maturity therefore MRP in this case is 4-3.7=0.3% as inflation would be cancelled out as they are same over the period of 10 years and 30 years.
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Calculating interest rates problem:
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