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HELP Please Kay Corporation's 5-year bonds yield 5.65% and 5 -year T-bonds yield 4.00%. The real risk-free rate is r=2.20%6, the inflation premium for 5
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Kay Corporation's 5-year bonds yield 5.65% and 5 -year T-bonds yield 4.00%. The real risk-free rate is r=2.20%6, the inflation premium for 5 -year bonds is IP =1.40%, the defauft 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 =(t1)0.1%, where t= number of years to maturity. What is the liquidity premium (LP) on Kay's bonds? a. 1.65% b. 0.7596 c. 0.35% d. 0.65% e. 1.25% Step by Step Solution
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