A companys 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding
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A company’s 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r* ) is 2.75%. The average inflation premium is 2.05%; and the maturity risk premium is estimated to be 0.1 × (t -1)%, where t = number of years to maturity. If the liquidity premium is 0.7%, what is the default risk premium on the corporate bonds?
MaturityMaturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For 
Fundamentals of Financial Management
ISBN: 978-1305635937
Concise 9th Edition
Authors: Eugene F. Brigham
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