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Tootsie Roll Industries' 10-year bonds are priced to yield 7%. Economists predict that real rates ...

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Tootsie Roll Industries' 10-year bonds are priced to yield 7%. Economists predict that real rates ...

Tootsie Roll Industries' 10-year bonds are priced to yield 7%. Economists predict that real rates and inflation will remain constant over the next ten years at 3% and 2%, respectively. Bond analysts estimate that the maturity risk premium for a 10-year maturity is 0.25% and that the liquidity risk premium for Tootsie's bond is 0.50%. What is the default risk premium for Tootsie's bond?

▸ 0.94%

▸ 0.99%

▸ 1.00%

▸ 1.09%

▸ 1.19%

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Corporate Finance Online

Edition: 2^nd

Authors: Eakins, McNally

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