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Squire Inc.'s 5-year bonds yield 12.50%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r=2.75%, the inflation premium for 5-year bonds is IP
Squire Inc.'s 5-year bonds yield 12.50%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r=2.75%, the inflation premium for 5-year bonds is IP =1.65%, the default risk premium for Squire'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=(t1)0.1%, where t= number of years to maturity. What is the liquidity premium (LP) on Squire's bonds? Select the correct answer. a. 6.50% b. 6.20% c. 6.30% d. 6.40% e. 6.10%
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