CMS Corporation's balance sheet as of today is as follows:

Long-term debt (bonds, at par)	$10,000,000
Preferred stock	2,000,000
Common stock ($10 par)	10,000,000
Retained earnings	4,000,000
Total debt and equity	$26,000,000

The bonds have a 3.7% coupon rate, payable semiannually, and a par value of $1,000. They mature exactly 10 years from today. The yield to maturity is 12%, so the bonds now sell below par. What is the current market value of the firm's debt?

Select the correct answer.

a. $5,239,983

b. $5,240,882

c. $5,241,782

d. $5,239,083

e. $5,242,681

5-year Treasury bonds yield 6%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*?

Select the correct answer.

a. 3.70%

b. 3.01%

c. 3.47%

d. 3.93%

e. 3.24%