Compute default risk premium on the corporate bonds

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Question: Default Risk Premium

A company's 5-year bonds are yielding 8.65% per year. Treasury bonds with the same maturity are yielding 5.6% per year, and the real risk-free rate (r*) is 2.3%. The average inflation premium is 2.9%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 1.5%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Reference no: EM131965964

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