Default risk premium on corporate bonds

Reference no: EM131350889

Default Risk Premium

A company's 5-year bonds are yielding 7.55% per year. Treasury bonds with the same maturity are yielding 5.6% per year, and the real risk-free rate (r*) is 2.8%. The average inflation premium is 2.4%, 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 0.5%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Reference no: EM131350889

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