The real risk free rate r* is 2.55% Inflation is expected to average 3.2% a year for
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The real risk free rate r* is 2.55% Inflation is expected to average 3.2% a year for the next 4 years, after which time inflation is expected to average 5 a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 9.7% which includes a liquidity premium of 0.55%. What is its default risk premium?
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