Assignment on default risk premium

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Default risk premium

1. Engler Corporation's 5-year bonds yield 7.85% and 5-year T-bonds yield 7.00%. The real risk-free rate is r* = 2.50%, the inflation premium for 5-year bonds is IP = 4.00%, the liquidity premium for Engler's bonds is LP = 0.60% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t) × 0.10%, where t = number of years to maturity. What is the default risk premium (DRP) on Engler's bonds?

Reference no: EM133122665

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