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What is the appropriate liquidity premium

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Problem -

1. A corporation is planning to sell its 90-day commercial paper to investors by offering an 8.4 percent yield. If the three-month T-bill's annualized rate is 7 percent, the default risk premium is estimated to be 0.6 percent, and there is a 0.4 percent tax adjustment, then what is the appropriate liquidity premium?

2. Suppose that, because of unexpected changes in the economy, the default risk premium increases to 0.8 percent. Assuming that no other changes occur, what is the appropriate yield to be offered on the commercial paper?

Reference no: EM132679197

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