If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 10%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
Select the correct answer.
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Solution:-
Risk free rate = 10 - 6.2 = 3.8 %
Default risk premium = Risk free rate -liquidity premium
= 3.8 - 0.4
= 3.40%
SO the answer is option (C) 3.40%
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 10%, the maturity risk...
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