Treasury bonds with same maturity are yielding

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Default Risk Premium

A company's 5-year bonds are yielding 9.7% per year. Treasury bonds with the same maturity are yielding 7.15% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 4%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.4%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Reference no: EM13848500

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