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Default risk premium. The real risk free rate, r*,...

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Default risk premium. The real risk free rate, r*, is 2.5 percent. Inflation. Inflation is expected to average 2.8 percent a year for the next 4 years, after which time inflation is expected to average 3.75 percent a year. Assume that there is no maturity risk premium. An 8 year corporate bond has a yield of 8.3 percent, which includes a liquidity premium of 0.75 percent. What is its default risk premium?

 

Paper#10186 | Written in 18-Jul-2015

Price : $25
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