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Compute the default risk premium associated with the bonds

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Problem - Currently, a six-month Treasury bill is yielding 3.2 percent. Company F's three-year bond has a yield equal to 5.0 percent, and its seven-year bond has a yield equal to 5.8 percent. Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or longer has a maturity risk premium (MRP). Except for their terms to maturity, the characteristics of the bonds are the same. Compute the (a) annual MRP and (b) default risk premium (DRP) associated with the bonds.

Reference no: EM132697328

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