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Assume a 5-year bond has a yield of 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk

Assume a 5-year bond has a yield of 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for the corporate bond is DRP = 0.85% versus zero for T-bonds, the liquidity premium on the bond is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t

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