Problem:
A company's 5-year bonds are yielding 7.6% per year. Treasury bonds with the same maturity are yielding 4.8% per year, and the real risk-free rate (r*) is 2.05%. The average inflation premium is 2.35%, and the maturity risk premium is estimated to be 0.1(t - 1)%, where t = number of years to maturity.
Required:
Quesiton: If the liquidity premium is 0.8%, what is the default risk premium on the corporate bonds?
Note: Please show basic calculation.