Qualcomm’s 5-year bonds yield 7.00%, and 5-year
T-bonds yield 5.15%. The real risk-free rate is r* =...

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Qualcomm’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 Keys’
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) x 0.1%, where t = number of
years to maturity.What is the default
risk premium (DRP) on Keys’ bonds? a) 0.99%
b) 1.10%
c) 1.21%
d) 1.33%
e) 1.46%

David · Accepted Answer

Qualcomm’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 Keys’ bonds is LP = 0.75% versus zero for T-bonds,

Qualcomm’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 Keys’ bonds...

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