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Based on the required rate of return, the real risk free rate, and the inflation premium, the default risk premium on the corporate bonds is 1.2%
<h3>How is the default risk premium found?</h3>
The default risk premium can be found as:
=real risk free rate + Inflation premium + default risk premium + liquidity premium + maturity risk premium
Solving gives:
= 0.07 - 0.0275 - 0.0205 - (0.1 x (t - 1)%)
= 0.07 - 0.0275 - 0.0205 - (0.1 x (5 years - 1)%)
= 1.2%
The default risk premium refers to the return that the bond is offering over what a risk-free bond would offer.
This means that the corporate bond described is offering 1.2% more than what a risk-free government bond would offer.
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Answer: p = - 6y - 2x + 8
Step-by-step explanation:
p = 2l + 2w
p = 2(4+5y-3x) + 2(2x - 8y)
p = 8 + 10y - 6x + 4x- 16y
p = - 6y - 2x + 8