Keys Corporation's 5-Year Bonds Yield 6

question 1

Multiple Choice

Keys Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%.The real risk-free rate is r* = 2.5%,the inflation premium for 5-year bonds is IP = 1.50%,the liquidity premium for Keys' bonds is LP = 0.5% 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)1.17%
• B)1.30%
• C)1.43%
• D)1.57%
• E)1.73%

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Definitions:

MARS Model

A framework identifying four critical factors—Motivation, Ability, Role perceptions, and Situational factors—that determine individual behavior and results at work.

Motivation

The reasons or driving forces behind individuals' actions and behavior, which can be intrinsic or extrinsic.

Role Perceptions

The understanding an individual has about their job duties, responsibilities, and expectations within an organization.

Collectivist

Pertaining to cultures or societies that prioritize group goals over individual ones, emphasizing community, cooperation, and interdependence.