What is the default risk premium on haque bonds

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Default risk premium

Problem 1: Haque Corporation's 5-year bonds yield 6.70% and 5-year T-bonds yield 5.70%. The real risk-free rate is r* = 2.20%, the inflation premium for 5-year bonds is IP = 3.00%, the liquidity premium for Haque's bonds is LP = 0.45% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t) × 0.10%, where t = number of years to maturity. What is the default risk premium (DRP) on Haque's bonds?

a. 0.55%

b. 0.65%

c. 0.75%

d. 0.85%

e. 0.95%

Reference no: EM132957049

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