Default Risk Premium
A Treasury bond that matures in 10 years has a yield of 4.5%. A 10-year corporate bond has a yield of 8.5%. 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.
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Interest rates on 4-year Treasury securities are currently 6.6%, while 6-year Treasury securities yield 7.25%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Round your answer to two decimal places.
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