Kay Corporation's 5-year bonds yield 5.90% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* - 2.5%, the inflation premium for 5-year bonds is IP-1.50%, the default risk premium for Kay's bonds is DRP 1.30% 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 Kay's bonds? O.0.19% Ob.0.25% O €0.20% 6.0.17% e. 0.23%
Kay Corporation's 5-year bonds yield 5.90% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* - 2.5%, the inflation premium for 5-year bonds is IP-1.50%, the default risk premium for Kay's bonds is DRP 1.30% 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 Kay's bonds? O.0.19% Ob.0.25% O €0.20% 6.0.17% e. 0.23%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Kay Corporation's 5-year bonds yield 5.90% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* - 2.5%, the inflation
premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay's bonds is DRP = 1.30% versus zero for T-bonds, and the
maturity risk premium for all bonds is found with the formula MRP-(t-1) x 0.1%, where t = number of years to maturity. What is
the liquidity premium (LP) on Kay's bonds?
O
Oa0.19%
O
O
O
b.0.25%
O €0.20%
8.0.17%
e. 0.25%
O
Dr Fran Day
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