The Real Risk Free Rate R Is 2 Inflation Is Expected To Average 1 6 A Year For T

The real risk-free rate, r*, is 2.25%. Inflation is expected to average 1.6% a year for the next 4 years, after which time inflation is expected to average 2.55% a year. Assume that there is no maturity risk premium. An 8-year corporate bond has a yield of 10.7%, which includes a liquidity premium of 0.25%. What is its default risk premium? Do not round intermediate calculations. Round your answer to two decimal places.

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