Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities,...
Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities, the inflation risk premium is 1.45 percent and the real risk-free rate is 2.90 percent. The security’s liquidity risk premium is 0.55 percent and maturity risk premium is 1.15 percent. The security has no special covenants. Calculate the bond’s default risk premium. (Round your answer to 2 decimal places.)
Homework Answers
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Bond's default risk premium = equilibrium rate of return - (Inflation risk premium + real risk free rate + security's liquidity risk premium + maturity risk premium) = 10% - (1.45%+2.90%+0.55%+1.15%) = 10% - 6.05% = 3.95% |
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Dakota Corporation 15-year bonds have an equilibrium rate of return of 10 percent. For all securities,...
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