A. You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.5%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

• Inflation premium = 3.25%
• Liquidity premium = 1.0%
• Maturity risk premium = 1.55%
• Default risk premium = 2.45%

On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.

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B. A Treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 9.50%. Assume that the liquidity premium on the corporate bond is 0.60%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

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