Default risk premium, The real risk-free rate, r*, is

Default risk premium

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Default Risk Premium

The real risk-free rate, r*, is 1.65%. Inflation is expected to average 2.3% a year for the next 4 years, after which time inflation is expected to average 5.4% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 10.65%, which includes a liquidity premium of 0.3%. What is its default risk premium? Round your answer to two decimal places.

Reference no: EM131013336

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