A company's 5-year bonds are yielding 7.75% per year. The real risk-free rate (r*) is 2.3%. The average inflation premiu

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A Company S 5 Year Bonds Are Yielding 7 75 Per Year The Real Risk Free Rate R Is 2 3 The Average Inflation Premiu 1 (53 KiB) Viewed 20 times

A company's 5-year bonds are yielding 7.75% per year. The real risk-free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 × (t-1)%, where t = number of years to maturity. If the liquidity premium is 1%, what is the default risk premium on the corporate bonds? A) 1.60% B) 1.65% C) 1.70% D) 1.50% E) 1.55%