NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 7.00 percent. The expected inflation premium is 1.20 percent annually and the real risk-free rate is expected to be 2.40 percent annually over the next ten years. The liquidity risk premium on NikkiG’s bonds is 0.20 percent. The maturity risk premium is 0.35 percent on 4-year securities and increases by 0.06 percent for each additional year to maturity. Calculate the default risk premium on NikkiG’s 10-year bonds. (Round your answer to 2 decimal places.)

Question

NikkiG’s Corporation’s 10-year bonds are currently yielding a return of 7.00 percent. The expected inflation premium is 1.20 percent annually and the real risk-free rate is expected to be 2.40 percent annually over the next ten years. The liquidity risk premium on NikkiG’s bonds is 0.20 percent. The maturity risk premium is 0.35 percent on 4-year securities and increases by 0.06 percent for each additional year to maturity. Calculate the default risk premium on NikkiG’s 10-year bonds. (Round your answer to 2 decimal places.)

Default risk premium %

Answer 1

To calculate the default risk premium on NikkiG's 10-year bonds, we need to know the default risk of the issuer. Unfortunately, the information provided in the question does not include any specific details about the default risk of NikkiG Corporation. Without this information, we cannot accurately calculate the default risk premium.

The default risk premium is typically based on the credit rating assigned to the issuer by credit rating agencies such as Standard & Poor's or Moody's. The higher the credit rating, the lower the default risk premium, and vice versa.

If you have the credit rating of NikkiG Corporation, you can refer to the default risk premium table provided by the credit rating agency to determine the default risk premium associated with that credit rating.