Question
2. [Maturity and Default Risk Premiums] Following is interest rate information currently being observed by the Electronic Publishing Corporation: One-year U.S. government securities 4.5% One-year
2. [Maturity and Default Risk Premiums] Following is interest rate information currently being observed by the Electronic Publishing Corporation:
One-year U.S. government securities 4.5%
One-year bank loans 6.0%
Five-year U.S. government securities 7.0%
Five-year bank loans 9.5%
A. What is the amount of the maturity risk premium on one-year versus five-year U.S. government securities?
B. What is the amount of the maturity risk premium on one-year versus five-year bank loans?
C. What is the default risk premium on one-year bank loans and on five-year bank loans?
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