Problem:
Nikki G's Corporation's 10-year bonds are currently yielding a return of 6.65 percent. The expected inflation premium is 1.05 percent annually and the real interest rate is expected to be 3.30 percent annually over the next ten years. The liquidity risk premium on Nikki G's bonds is 0.15 percent. The maturity risk premium is 0.10 percent on 4-year securities and increases by 0.03 percent for each additional year to maturity.
Required:
Question: Calculate the default risk premium on Nikki G's 10-year bonds
Note: Provide support for your underlying principle.