Maturity risk premium is estimated

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Reference no: EM131045075

Drongo Corporation's 5-year bonds yield 7.96%. The real risk-free rate is 2.74%. The maturity risk premium is estimated to be 0.13%(t-1), where t is equal to the time to maturity. The default and liquidity premiums for Drongo's bonds total 0.51% and are believed to be the same for all bonds issued by the company. If the average inflation rate is expected to be 5.8% for years subsequent to 5 through year 8, what is the yield on a 8-year bond for Drongo?

Reference no: EM131045075

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