Use the following data to answer questions 5 and 6. Assume the following premiums reflect current market conditions:

1. • r* = 3.15%;
   • IP (1-year bonds) = 2.35%;
   • IP (3-year bonds) = 2.65%;
   • IP (5-year bonds) = 2.90%;
   • DRP (AAA corporate bonds) = 0.60%;
   • DRP (AA+ corporate bonds) = 0.85%;
   • LP (AAA corporate bonds) = 0.22%;
   • LP (AA+ corporate bonds) = 0.30%;
   • MRP = 0.1% (t 1) where t is the number of years to maturity.
   • Calculate the interest rate for a 5-year AA+ corporate bond.

   • a. 3.52%

     b. 7.60%

     c. 5.35%

     d. 2.75%