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-2015Price : $25