Default risk premium on the corporate bond, Financial Accounting

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a) A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Suppose that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond?

b)  The real risk-free rate is 3%, and inflation is likely to be 4% for the next 2 years. A 2-year Treasury security yields 8.1%. What is the maturity risk premium for the 2-year security?

 


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