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    kwatson's Avatar
    kwatson Posts: 1, Reputation: 1
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    #1

    Mar 11, 2007, 08:52 PM
    Default Risk Premium
    Can you tell me how to calculate the DRP on the Corporate bonds? Info that I have follows:
    5 Year Treasury note 5% interest rate
    5 year Corporate bond (high quality) 6% interest rate
    5 Year Corporate Bond (low quality) 8% interest rate

    Thanks for the help!
    Kathy
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    #2

    Apr 5, 2008, 12:31 AM
    Generally. DRP is the difference between 10 year US Treasury Bill and the low grade bond having a rating of Baa or lower than that.
    CliffARobinson's Avatar
    CliffARobinson Posts: 1,416, Reputation: 101
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    #3

    Feb 21, 2012, 04:36 PM
    You take the Yield to Maturity of the Corporate Bond; (6% on your first example); subtract that from the liquidity of the Corporate Bond; (for example let's say liquidity premium is rated at .25%); and subtract the "Risk Free" Treasury Bond rate of the high quality bond at 5%.

    Example:

    6%-.25%-5% = .75%
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