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Given the following table:

Type of Security Interest Rate
5-Year Treasury Note 5%
5-Year Corporate Bond (High quality) 6%
5-Year Corporate Bond (Low quality) 8%
Calculate the default risk premium (DRP) on the Corporate bonds.

1 answer

To sell the corporate bonds you must pay a premium of one percent more than on treasury note for the high quality and three percent more than treasury rate for low quality.