Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.75%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

Question 3 options:

1)

a. 1.08%

2)

b. 1.20%

3)

c. 1.32%

4)

d. 1.45%

5)

e. 1.60%