1 gran cos 5-year bonds yield 700 and 5-year t-bonds yield, Ask an Expert

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1. Gran Co.'s 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Gran's bonds is LP = 0.75% 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 Gran's bonds?

2. Gran Inc.'s 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Gran's bonds is DRP = 1.20% 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 liquidity premium (LP) on Gran's bonds?

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Financial Management, Finance

Category:- Financial Management
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