Question
Default Risk Premium The real risk-free rate, r*, is 3.5%. Inflation is expected to average 2.7% a year for the next 4 years, after which
Default Risk Premium
The real risk-free rate, r*, is 3.5%. Inflation is expected to average 2.7% a year for the next 4 years, after which time inflation is expected to average 4.6% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.95%, which includes a liquidity premium of 0.9%. What is its default risk premium? Round your answer to two decimal places.
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Financial Management Theory And Practice
Authors: Prasanna Chandra
11th Edition
9355322208, 978-9355322203
