The Gergen Group's 5-Year Bonds Yield 6

question 5

Multiple Choice

The Gergen Group's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%.The real risk-free rate is r* = 2.80%, the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Gergen's bonds is LP = 1.25%, 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 inflation premium (IP) on 5-year bonds?

• A) 1.40%
• B) 1.55%
• C) 1.71%
• D) 1.88%
• E) 2.06%

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Definitions:

Marxist Socialists

Ideologists who follow the teachings of Karl Marx, advocating for a society without classes where the means of production are owned collectively.

Reform Socialists

Advocates a peaceful, evolutionary transition of society to socialism through legal and political reforms rather than revolutionary upheaval.

Anarchism

A political philosophy that advocates self-governed societies based on voluntary, cooperative institutions and the rejection of all involuntary, coercive forms of hierarchy.

Bakunin

Mikhail Bakunin was a Russian revolutionary anarchist, socialist and founder of collectivist anarchism.