Default risk premium on the corporate bond, Accounting Basics

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Default risk premium on the corporate bond

Problem:

A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.5%.

Required:

Question: What is the default risk premium on the corporate bond?

Note: Show all workings.

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Accounting Basics: Default risk premium on the corporate bond

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Accounting Basics: Default risk premium on the corporate bond

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