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Default risk premium on the corporate bonds

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A company's 5-year bonds are yielding 7% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.05%; 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 0.7%, what is the default risk premium on the corporate bonds?

Reference no: EM133074283

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