A Treasury bond that matures in 5 years has a yield of 4.8%-A5-year corporate bond has a yield of 6.55%. The k is 2.5%. Assume that the liquidity premium on the corporate bond is 0.80%. What is the default risk premium on the corporate bond? a. 0.95 percent b. 1.75 percent c. You can't calculate it since you don't have the MRP d. You can't calculate it since you don't have the IP. e. You can't calculate it since you don't have the MRP or IP.
A Treasury bond that matures in 5 years has a yield of 4.8%-A5-year corporate bond has a yield of 6.55%. The k is 2.5%. Assume that the liquidity premium on the corporate bond is 0.80%. What is the default risk premium on the corporate bond? a. 0.95 percent b. 1.75 percent c. You can't calculate it since you don't have the MRP d. You can't calculate it since you don't have the IP. e. You can't calculate it since you don't have the MRP or IP.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A Treasury bond that matures in 5 years has a yield of 4.8%-A5-year corporate bond has a yield of 6.55%. The k is 2.5%. Assume that the liquidity premium on the corporate bond is 0.80%. What is the default risk premium on the corporate bond? a. 0.95 percent b. 1.75 percent c. You can't calculate it since you don't have the MRP d. You can't calculate it since you don't have the IP. e. You can't calculate it since you don't have the MRP or IP. The Answer is A, but please show steps and explain reasoning!
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