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Explain default risk premium

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The real risk-free rate, r*, is 3.3%. Inflation is expected to average 3.05% 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 10.25%, which includes a liquidity premium of 0.85%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

Reference no: EM132664125

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