The Wall Street Journal reports that the current rate on 8-year Treasury bonds is 5.85 percent, on 15-year Treasury bonds is 6.25 percent, and on a 15-year corporate bond issued by MHM Corp. is 7.35 percent. Assume that the maturity
risk premium is zero. If the default risk premium and liquidity risk premium on an 8-year corporate bond issued by MHM Corp. is the same as those on the 15-year corporate bond, calculate the current rate on MHM Corp.’s 8-year corporate bond.
2 answers