A Treasury bond that matures in 10 years has a yield of 6%,

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Business Finance

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A 10-year corporate bond has a yield of 8.5%. Assume that the liquidity premium on the corporate bond is 0.65%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

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Explanation & Answer

7.85%. If you take away the liquidity premium, you get only the default risk left as a reason for offering interest.


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