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What Premium in yield is required for the default risk

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Question - Suppose that 91-days Treasury bills currently yield 6 percent to maturity and that 25 year Treasury bonds yield 7.25 percent. Lopez Pharmaceutical Company recently has issued long-term, 25-year bonds that yield 9 percent to maturity.

Required -

a) If the yield on Treasury bills is taken to be short-term, risk-free rate, what Premium in yield is required for the default risk and lower marketability associated with the Lopez bonds?

b) What Premium in yield above the short-term, risk-free rate is attributable to maturity?

Reference no: EM132521349

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