What you say about risk premium and the liquidity premium

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Reference no: EM131235169

An IBM bond promising to pay $100,000 costs $90,090. Time-equivalent Treasuries offer 8%.

(a) Setting aside the risk neutrality and perfect markets assumption for this question only, what can you say about the risk premium, the default premium, and the liquidity premium?

(b) Returning to our assumption that markets are risk neutral, but still setting aside the perfect markets assumption for this question, what can you say about the risk premium, the default premium, and the liquidity premium?

(c) Assuming that the liquidity premium is 0.5%, what can you say about the risk premium, the default premium, and the liquidity premium?

Reference no: EM131235169

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