Default risk premium-liquidity premium, Finance Basics

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Default risk premium-liquidity premium

ABC company's 5 year bonds yield 7.00% and 5 year US Treasury securities yield 5.15%. The real risk-free rate (r*) is 3.0% and the inflation premium for 5 year bonds is 1.75%. There is a liquidity premium of 0.75% for ABC's bonds.

a. What is the default risk premium for ABC's 5 year bonds?

b. What circumstances in the marketplace would have to exist for ABC company to have a liquidity premium?

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Finance Basics: Default risk premium-liquidity premium

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Finance Basics: Default risk premium-liquidity premium

Reference No:- TGS052936

Have a Question? (oR Write a Review)

Recent Questions Asked Finance Basics

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Request for Solution File

Ask an Expert for Answer!!

Finance Basics: Default risk premium-liquidity premium

Reference No:- TGS052936

Recent Questions Asked Finance Basics

Q : Construct a measure of the change in the price level

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