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Keys Corporation's 5-year bonds yield 6.6%, and 5-year T-bonds yield 4.8%. The real risk-free rate is r* = 2.2%, the inflation premium for 5 years
Keys Corporation's 5-year bonds yield 6.6%, and 5-year T-bonds yield 4.8%. |
The real risk-free rate is r* = 2.2%, the inflation premium for 5 years bonds is |
IP = 2.2%, the default risk premium for Keys' bonds is DRP = 0.18% 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. What |
is the liquidity premium (LP) on Keys' bonds? |
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