At present, 20-year Treasury bonds are yielding 5.1%, while some 20-year corporate bonds that you are interested in are yielding 9.1%. Assuming that the maturity-risk premium on both bonds is the same and that the liquidity-risk premium on the corporate bonds is 0.25% while it is 0.0% on the Treasury bonds, what is the default-risk premium on the corporate bonds?

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DATA

20-year Treasury bond yield 5.10%

20-year corporate bond yield 9.10%

Liquidity-risk premium on corporate bond 0.25%

SOLUTION

Total risk premium on corporate bond _____

Default-risk premium on corporate bond ____