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A corporation's 5-year bonds yield 6.8500% Currently, the same term 5-year Treasury bonds (T-bonds) yield 4.7500% The real risk-free rate is r = 2.8000% Default

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A corporation's 5-year bonds yield 6.8500% Currently, the same term 5-year Treasury bonds (T-bonds) yield 4.7500% The real risk-free rate is r = 2.8000% Default risk premium for the company's bonds is DRP = 0.8500% (Zero for T-bonds with no default risk) Liquidity premium on the corporation's bonds is LP = 1.2500% (no liquidity premium for a T-bond) Maturity risk premium f(MRP) for all bonds is found using the formula MRP = 10%.it - 1) where t = number of years to maturity. What is the inflation premium (IP) on the 5-year bonds? 4000% .5500% 1000% 500% 2500%

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