If 10-Year T-Bonds Have a Yield of 6

question 87

Multiple Choice

If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 8.5%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?

• A) 1.90%
• B) 2.09%
• C) 2.30%
• D) 2.53%
• E) 2.78%

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Definitions:

Wages Expense

The total cost incurred by a company for paying its employees, including salaries, wages, and other forms of compensation.

Overpayment Error

A financial mistake where more money is paid out than is owed or necessary, leading to a discrepancy in accounts.

Cash

A form of liquid asset that includes currency, coins, bank deposits, and other mediums of exchange that can be used immediately for transactions.

Trial Balance Totals

The aggregate amounts of all debits and credits in a company's trial balance, which should match to indicate that the accounting entries are balanced.