7)A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporat

Question

7)A Treasury bond that matures in 10 years has a yield of 3%. A 10-year corporate bond has a yield of 10%. Assume that the liquidity premium on the corporate bond is 0.6%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
8)Thatcher Corporation's bonds will mature in 12 years. The bonds have a face value of $1,000 and an 11.5% coupon rate, paid semiannually. The price of the bonds is $1,050. The bonds are callable in 5 years at a call price of $1,050. Round your answers to two decimal places.
What is their yield to maturity?
%
What is their yield to call?
%

Explanation / Answer

7 ) DLP= 3 - 10 + .6 = -6.4 therefore the default risk premium = 6.4 %

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