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Question 7 Keys Corporation's 5-year bonds yield 5.1%, and 5-year T-bonds yield 3.9%. The real risk-free rate is r = 2.1%, the inflation premium
Question 7 Keys Corporation's 5-year bonds yield 5.1%, and 5-year T-bonds yield 3.9%. The real risk-free rate is r = 2.1%, the inflation premium for 5 years bonds is = IP 1.4%, the default risk premium for Keys' bonds is DRP = 0.55% 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? 0.70% 0.55% O 0.75% 0.60% 0.65% 1
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