Question 2:

Part I: A corporation is planning to sell its 90-day commercial paper to investors offering an 8.4 percent yield. If the three-month Treasury bills annualized rate is 7 percent, the credit risk premium is estimated to be 0.6 percent and there is a 0.4 percent tax adjustment, what is the liquidity premium on the commercial paper?

Part II: Continuing with the same question from above, Now, if due to unexpected changes in the economy the credit risk premium increases to 0.8 percent, what is the appropriate yield to be offered on the commercial paper (assuming no other changes occur)?