If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

Question

a. 1.00%
b. 1.10%
c. 1.20%
d. 1.30%
e. 1.40%

Answer 1

Please see your next post.

Sra

Answer 2

If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?
(Points: 4)
1.00%
1.10%
1.20%
1.30%
1.40%

Answer 3

1.30 r=7.5-5.2=2.3%
r=2.3+drp+0.2+1.1
r=drp+3.6
drp=r-3.6
drp=2.3-3.6=1.3