Question
Following is information about three bonds: IssuerYieldTime to Maturity Treasury2.0%6 months Company A5.05 years Company B5.38 years Although none of the bonds has a liquidity
Following is information about three bonds:
IssuerYieldTime to Maturity
Treasury2.0%6 months
Company A5.05 years
Company B5.38 years
Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or greater has a maturity risk premium (MRP). Except for their terms to maturity, the characteristics of the Company A and Company B bonds are the same (including their default risk). The average inflation rate is expected to remain constant during the next 10 years. What is the default risk premium (DRP) associated with the bonds issued by Company A and Company B?
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An Introduction to Investment Banks, Hedge Funds, and Private Equity
Authors: David P. Stowell
1st edition
978-0123745033, 0123745039, 978-9380931074
