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What is the default risk premium on Rakowski bonds

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Reference no: EM132853646

Question - Rakowski Corporation's 5-year bonds yield 6.00% and 5-year T-bonds yield 5.00%. The real risk-free rate is r* = 2.00%, the inflation premium for 5-year bonds is IP = 2.50%, the liquidity premium for Rakowski's bonds is LP = 0.30% 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 Rakowski's bonds?

Reference no: EM132853646

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