What is the credit risk premium

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Question: Calcium Manufacturing Corporation Ltd has supplied your bank with the following balance sheet (in $millions) with regards to its application of a loan for $1,000. Cash = $310; Accounts receivables = $450; Inventory = $220; Plant & Equipment = $2,200; Land = $700; Accounts payable = $180; Long-term Debt = $1,960 and Equity = $1,740. Additional information supplied by Calcium Manufacturing Corporation Ltd (in $millions) includes: Net Sales = $5,200; Taxes = $940; Interest expense = $220; Depreciation = $220. Furthermore, Calcium Manufacturing Corporation Ltd pays no dividends, and its Equity is currently selling at twice its book value. The company's credit rating is 'A' and its bonds are trading at 7.5%, with the current Commonwealth Government bond rate being 5.6%. The recovery rate on defaulted loans is 75%. What is the credit risk premium?

Reference no: EM133496250

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