A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 5% per year, and the real risk-free rate (r*) is 3.05%. The average inflation premium is 1.55%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

Question

A company's 5-year bonds are yielding 8% per year. Treasury bonds with the same maturity are yielding 5% per year, and the real risk-free rate (r*) is 3.05%. The average inflation premium is 1.55%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.
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