Problem:
A ten year us treasury bond has a 3.50 percent interest rate, while a same maturity corporate bond has a 5.25 percent interest rate, while a same maturity corporate bond has a 5.25 percent interest rate. real interest rates and inflation rate expectations would be the same for the two bonds.
Required:
Question: If a default risk premium of 1.5 percentage points is estimated for the corporate bond, determine the liquidity premium for the corporate bond.
Note: Please show guided help with steps and answer.