Hop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.40%. The default risk
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Question:
Hop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.40%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 0.70% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?
Question 6 options:
|
| 3.36% |
|
| 3.50% |
|
| 3.64% |
|
| 2.80% |
|
| 2.73% |
Expert Answer:
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