Economics

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If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
a. 1.00%
b. 1.10%
c. 1.20%
d. 1.30%
e. 1.40%

  • Economics -

    Please see your next post.

    Sra

  • Economics -

    If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
    (Points: 4)
    1.00%
    1.10%
    1.20%
    1.30%
    1.40%

  • Economics -

    1.30 r=7.5-5.2=2.3%
    r=2.3+drp+0.2+1.1
    r=drp+3.6
    drp=r-3.6
    drp=2.3-3.6=1.3

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