Question: 12. Problem 6.11 DEFAULT RISK PREMIUM A company's 5-year bonds are yielding 9.6% per year. Treasury bonds with the same maturity are yielding 5.55% per

12. Problem 6.11

DEFAULT RISK PREMIUM

A company's 5-year bonds are yielding 9.6% per year. Treasury bonds with the same maturity are yielding 5.55% per year, and the real risk-free rate (r*) is 2%. The average inflation premium is 3.15%, 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 1.35%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places.

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