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The ABC Companys 10-Year bonds yield 4.50%. The real risk-free rate is r* = 0.5%, the inflation premium for 10 years bonds is IP =
The ABC Companys 10-Year bonds yield 4.50%. The real risk-free rate is r* = 0.5%, the inflation premium for 10 years bonds is IP = 1.50%, the liquidity premium for ABC bonds is LP = 0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t 1)*0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on the ABC bonds?
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