5. A Corporation's 5-year bonds yield 7.50% 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 default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP=(t-1) X0.1%, where t= number of years to maturity. What is the liquidity premium (LP) on Kay's bonds? a. 1.55% b. 1.87% c. 1.62% d. 1.80% e. 1.94% ANSWER: d