Calculate the default risk premium

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Reference no: EM1360864

A company's 5 year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% pre year, and the real risk free rate (r*) is 2.3 %. The average inflation premium is 2.5% and the maturity risk premium is estimated to be 0.1 x (t-1)%, where t=number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds?

Reference no: EM1360864

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