Chandler Co.'s 5-year bonds yield 7.00%,and 5-year T-bonds yield 5.15%.The real risk-free rate is r* = 3.0%,the inflation premium for 5-year bonds is IP = 1.75%,the liquidity premium for Chandler's bonds is LP = 0.75% versus zero for T-bonds,and the maturity risk premium for all bonds is found with the formula MRP = (t -1)* 0.1%,where t = number of years to maturity.What is the default risk premium (DRP)on Chandler's bonds?

Question

Quizplus · Accepted Answer

$\begin{array}{llr}
\text { Maturity } & & 5 \
\text { rKeys' } & & 7.00 \% \
\text { r }^{-} \text {T-bond } & \text { Included in both bonds } & 5.15 \% \
r^{*} & \text { Included in both bonds } & 3.00 \% \
\text { IP } & \text { Included in corp. only } & 1.75 \% \
\text { LP } & \text { Included in both bonds } & 0.75 \% \
\text { MRP } & & 0.40 \% \
\text { DRP } & & 1,10 \%
\end{array}$