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What is the default risk premium on the corporate bond

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Question: 1. The real risk-free rate of interest is 4%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year government securities? What is the yield on 3-year government securities?

2. Government bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?

3. Digicomp's bonds will mature in 8 years. The bonds have a face value of $1,000 and a 7% coupon rate, paid semiannually. The price of the bonds is $1,110. The bonds are callable in 3 years at a call price of $1,050. What is their yield to maturity? What is their yield to call?

Reference no: EM132753415

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