Question
The 10-year bonds of Special Agents Corporation are yielding 10 percent per year. Treasury bonds with the same maturity are yielding 7.7 percent per year.
The 10-year bonds of Special Agents Corporation are yielding 10 percent per year. Treasury bonds with the same maturity are yielding 7.7 percent per year. The real risk-free rate (r*) has not changed in recent years and is 3 percent. The average inflation premium is 4.0 percent and the maturity risk premium is .7 percent. If the default risk premium is 1.0 percent, what is the liquidity risk premium on the corporate bond?
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