1. You are considering a 10-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 10.9%, how much should you be willing to pay for the bond?
2. Edit question A company's 5-year bonds are yielding 7.35% per year. Treasury bonds with the same maturity are yielding 5.55% per year, and the real risk-free rate (r*) is 2.75%. The average inflation premium is 2.4%, and the maturity risk premium is estimated to be 0.1 x (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.5%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.