Corporation's 5-Year Bonds Yield 7

question 54

Multiple Choice

Corporation's 5-year bonds yield 7.00%, and 5-year T-bonds yield 5.15%.The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Keys' bonds is LP = 0.75% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1)  0.1%, where t = number of years to maturity.What is the default risk premium (DRP) on Keys' bonds?

• A)0.99%
• B)1.10%
• C)1.21%
• D)1.33%
• E)1.46%

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