T7

Disco Corporation's 10 -year bonds yield 8.35%, and 10 -year T-bonds yield 2.80%. The real risk-free rate is r=2.75%, the inflation premium for 10 -year bonds is IP=4.65%, the default risk premium for Disco's bonds is DRP =4.60% 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 Disco's bonds? \begin{tabular}{|l} \hline 5.55% \\ \hline 0.05% \\ \hline 6.55% \\ \hline 0.90% \\ \hline 0.95% \end{tabular}