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Kern Corporation's 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. The real risk-free rate is r* = 2.5%, the default risk premium for Kern's
Kern Corporation's 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. The real risk-free rate is r* = 2.5%, the default risk premium for Kern's bonds is DRP = 1.90% versus zero for T-bonds, the liquidity premium on Kern's bonds is LP = 1.3%, and the maturity risk premium for all bonds is found with the formula MRP = (t 1) mc009-1.jpg 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds? Group of answer choices 0.70% 0.60% 0.81% 0.86% 0.85%
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