Kelly Inc's 5-Year Bonds Yield 7

question 53

Multiple Choice

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.90%.The real risk-free rate is r* = 2.5%,the default risk premium for Kelly's bonds is DRP = 0.40%,the liquidity premium on Kelly's bonds is LP = 2.2% versus zero on T-bonds,and the inflation premium (IP) is 1.5%.What is the maturity risk premium (MRP) on all 5-year bonds?

• A)0.73%
• B)0.81%
• C)0.90%
• D)0.99%
• E)1.09%

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