Problema companys 5-year bonds are yielding 76 per year, Ask an Expert

Accounting

Problem:

A company's 5-year bonds are yielding 7.6% per year. Treasury bonds with the same maturity are yielding 4.8% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium is 2.35%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity.

Required:

Quesiton: If the liquidity premium is 0.8%, what is the default risk premium on the corporate bonds?

Note: Please show basic calculation.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91170523

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