Homework Answers
Promised Return on Treasury Bond = 7%, As the Treasury bonds are backed by the taxing power and full faith of the US Government, the return promised on these bonds are practically risk-less. Hence Risk-Free Rate = Rf = 7%
Promised Return on BB Rated Bond = R = 9.2 %
Therefore, Risk-Premium = R - Rf = 9.2 - 7 = 2.2 %
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