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4. Problem 6.11 (Default Risk Premium) eBook A company's 5-year bonds are yielding 8.6% per year. Treasury bonds with the same maturity are yielding 7.05%
4. Problem 6.11 (Default Risk Premium) eBook A company's 5-year bonds are yielding 8.6% per year. Treasury bonds with the same maturity are yielding 7.05% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 3.90%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.6%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %
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