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Cackett Corporation's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.85%, the default risk premium for Crockett's
Cackett Corporation's 5-year bonds yield 6.85%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.85%, the default risk premium for Crockett's bonds is DRP = 1.20% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 0.90% 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 inflation premium (IP) is built into 5-year bond yields? Group of answer choices 1.05% 1.25% 1.42% 1.16% 1.50%
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