A corporation is planning to sell its 90-day commercial paper to investors offering

a 2.4% yield.

i) If the three-month T-bills annualized rate is 1.5%, the default risk premium

is estimated to be 0.2% and there is a 0.3% tax adjustment, what is the

appropriate liquidity premium?

ii) If due to unexpected changes in the economy the default risk premium

increases to 0.4%, what is the appropriate yield to be offered on the

commercial paper (assuming no other changes occur)?