Default Risk Premium
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Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.80%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
1.16%
1.25%
1.56%
1.08%
1.43%
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The solution explains the calculation of default risk premium
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