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Crockett Corporation's 5-year bonds yield 8.85%, and 5-year T-bonds yield 6.85%. The real risk-free rate is r* = 4.35%, the default risk premium for Crockett's
Crockett Corporation's 5-year bonds yield 8.85%, and 5-year T-bonds yield 6.85%. The real risk-free rate is r* = 4.35%, the default risk premium for Crockett's bonds is DRP = 0.75% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 3) 0.25%, where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds? t O 2.00% O 1.55% O 2.30% O 1.85% O 1.40%
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