Question
XYZ Inc's 5-year bonds yield 8.75%. The real risk-free rate is r* = 2.7%, the default risk premium for XYZ's bonds is DRP = 0.45%,
XYZ Inc's 5-year bonds yield 8.75%. The real risk-free rate is r* = 2.7%, the default risk premium for XYZ's bonds is DRP = 0.45%, the liquidity premium on Kelly's bonds is LP = 2.2% versus zero on T-bonds, and the inflation premium (IP) is 1.45%. Which is closest to the maturity risk premium (MRP) on the 5-year bonds?
a. 1.00% b. 1.25% c. 1.50% d. 1.75% e. 2.00%
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
