Answer:
e. 2.00%
Explanation:
Default risk premium is the compensation that is paid to the investors for an entity's chances of defaulting on its debt.
Treasury bonds are considered to be the risk free assets.
Liquidity risk premium is the amount compensated to investors for the assets not actively traded in the market.
Treasury bonds are highly liquid form of an asset class.
In order to make a valid comparison between two securities
liquidity premium of 1% will be reduced from 11% of corporate bond. Leaving behind 10% to make both assets liquid and of valid comparison.
default risk premium = 10% return of corporate bond - 8% of Treasury bond return
Default risk premium = 2%
