Bloomberg reports that the Standard &Poors has downgraded the Italian Government bonds to junk status. The analysts predict that the Italian government will make good on the rest of the interest payments of all outstanding bonds, but there are also rumours that holders of Italian government bonds will have to incur a haircut (i.e. a loss on the face value of the bond) of 50%. Given that you already hold an Irish Government bond with a face value of 1,000 and a coupon rate of 10% that you bought a year ago which matures in 4 years time, you are worried about your investment. After looking up the price of your bond on Bloomberg you find out that it is being traded for 720.16. You then check on the 5 year Germany Government bonds that are due to mature in 1 and 4 years. They have, respectively, yields of 0.78% and 1.45% up from a week ago when their yields were 0.72% and 1.40%, due to the uncertainty about the Germanys ability to bail out more ailing Euro-zone economies.

What is the default risk premium on your Italian bond?