Can you please answer the question below thanks A particular

Can you please answer the question below.

thanks

A particular security\'s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real risk-free rate is 3.5 percent. The security\'s liquidity risk premium is 0.35 percent and maturity risk premium is 1.05 percent. The security has no special covenants. Calculate the security\'s default risk premium. (Round your answer to 2 decimal places. (e.g., 32.16)) Default risk premium

Solution

Equilibrium rate = risk free rate+inflation risk premium+ default risk premium+liquidity risk premium+maturity risk premium Therefore, 8 = 3.50+1.75+0.35+1.05+default risk premium Default risk premium = 8-3.50-1.75-0.35-1.05 = 1.35% 4000 is the FV and the amount to be deposited today is the PV. Hence, the amount to be deposited = 4000/1.08^4 = $ 2,940.12