2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r...

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2. Black Sheep Corporations 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r = 3.0%, t

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Answer 1

Answer #1

Black Sheep's yield = real risk free rate
+ inflation premium
+ liquidity premium
+ maturity risk premium
+ default risk premium

Substituting values,

7% = 3%
+ 1.75%
+ 0.75%
+ (5 - 1) x 0.1%
+ default risk premium

Hence default risk premium is 1.1%

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Answer 2

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2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r...

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Add Answer to: 2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r...

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2. Black Sheep Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r...