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Niendorf Corporation's 5-year bonds yield 8.70%, and 5-year T-bonds yield 5.65%. The real risk-free rate is r* = 3.35%, the inflation premium for 5-year bonds
Niendorf Corporation's 5-year bonds yield 8.70%, and 5-year T-bonds yield 5.65%. The real risk-free rate is r* = 3.35%, the inflation premium for 5-year bonds is IP = 1.90%, the default risk premium for Niendorf's bonds is DRP = 1.20% 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 Niendorf's bonds? Oa. 1.55% Ob. 2.65% Oc. 3.05% Od. 1.85% Oe. 2.25%
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