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:

Common Size Income Statement

A financial statement in which all items are expressed as a percentage of total sales, facilitating ratio analysis and comparison.

Operating Expenses

Costs associated with the day-to-day operations of a business, such as rent, utilities, and payroll.

Net Income

Company's overall earnings post the subtraction of taxes and operational costs from its total revenue.

Trend Income Statement

An income statement that shows several years of financial data in a horizontal format, making it easier to identify trends and patterns.