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Kop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.90%. The default risk premium for Kop's bonds is DRP = 0.40%,
- Kop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 5.90%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 0.20% 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*?
| a. | 4.00% | |
| b. | 3.48% | |
| c. | 4.96% | |
| d. | 3.64% | |
| e. | 3.00% |
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Fundamentals Of Financial Management
Authors: James Van Horne, John Wachowicz
13th Revised Edition
978-0273713630, 273713639
