Suppose 10-Year T-Bonds Have a Yield of 5

question 75

Multiple Choice

Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 7.10%.Also,corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds,and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%.What is the default risk premium on corporate bonds?

• A) 1.64%
• B) 1.55%
• C) 1.19%
• D) 1.35%
• E) 1.38%

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