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Default risk premium on the corporate debt security

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Reference no: EM133072051

You are considering an investment in a one-year government debt security with a yield of 7.25% or a highly liquid corporate debt security with a yield of 9.05%. The expected inflation rate for the next year is expected to be 3.75%.

a. What would be your real rate earned on either of the two investments?

b. What would be the default risk premium on the corporate debt security?

Reference no: EM133072051

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