Default risk premium, which includes a liquidity premium of

Default risk premium

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Reference no: EM131841193

Default Risk Premium

The real risk-free rate, r*, is 3.5%. Inflation is expected to average 2.7% a year for the next 4 years, after which time inflation is expected to average 4.6% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.95%, which includes a liquidity premium of 0.9%. What is its default risk premium? Round your answer to two decimal places.

Reference no: EM131841193

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