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Keys Corporation's 5 - year bonds yield 6 . 5 0 % , and 5 - year T - bonds yield 4 . 4 0

Keys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r*=2.5%, the liquidity premium for Keys' bonds is LP =0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =(t 1)*0.1%, where t = number of years to maturity. Answer the following questions: A. What is the inflation premium (IP) for 5-year bonds? B. What is the default risk premium (DRP) on Keys' bonds?

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