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Question

Edit View History Bookmarks Window Help Ma 43% Thu 12:09 PM a Help Save&Exit Submit A particular security's equilibrium rate of return is 8 percent For all securities, the inflation risk premium is 400 percent and the real risk-free rate is 2.0 percent. The security's liquidity risk premium is 0.25 percent and maturity risk premium is 065 percent The securfity has no special covenants. Calculate the security's deut risk premium (Round your answer to 2 decimal places. (e.g 3216 Prev t2o, 25 Next > 4 0

Explanation / Answer

Answer: Default risk premium =1.15%

Explanation :

Default risk premium = equilibrium rate of return - (inflation risk premium + risk free rate + liquidity risk premium + maturity risk premium)

= 8% - (4.0%+ 2.0%+0.25%+0.65%)

=1.15%

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