1.The following table lists yields to maturity for various debt instruments. Answer the questions that follow.

Instrument Yield

3-month US Treasury Bill 0.01%

5-year US Treasury Bond 0.98%

10-year US Treasury Bond 1.72%

3-month Commercial Paper 0.04%

5-year Investment-Grade Corporate Bond 1.56%

10-year Investment-Grade Corporate Bond 2.25%

5-year High-Yield Corporate Bond 6.72%

a.What is the risk premium on a 5-year investment-grade corporate bond? Show your calculations.

b.What is the risk premium on a 10-year investment-grade corporate bond? Show your calculations.

c.What is the risk premium on a 5-year high-yield corporate bond? Show your calculations.

d.What is the significance of US Treasury bonds in making risk premium calculations?