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Assume you make the following investments: - A $10,000 investment in a 10 year T-bond that yields 7.00%, and - A $20,000 investment in a
Assume you make the following investments:
- A $10,000 investment in a 10 year T-bond that yields 7.00%, and
- A $20,000 investment in a 10 year corporate bond with an A rating and a yield of 8.70%
Based on this information, and the knowledge that the difference in liquidity risk premiums between the two bonds is 0.50%, what is your estimate of the corporate bond's default risk premium?
a. 1.70%
b. 1.20%
c. 2.04%
d. 1.68%
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