Business, 02.02.2021 14:00, luisr0754

The 10-year bonds of Gator Corporation are yielding 8% per year. Treasury bonds with the same maturity are yielding 6.4% per year. The real risk-free rate (r*) is expected to be constant at 3%. The average inflation premium is 2.5% and the maturity risk premium takes the form: MRP = 0.1%(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 bond? a.) 0.7%

b.) 1.10%

c.) 1.00%

d.) 0.9%

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The 10-year bonds of Gator Corporation are yielding 8% per year. Treasury bonds with the same maturi...