keys corporation’s 5-year bonds yeild 7.00% and 5-year T-bonds yields 5.15%. The real risk-free rate is r* = 3.0%, the…
keys corporation’s 5-year bonds yeild 7.00% and 5-year T-bonds yields 5.15%. The real risk-free rate is r* = 3.0%, the inflation premium for 5-year bonds is IP = 1.75%, the liquidity premium for Keys bonds is LP = 0.75% verss zero for T-Bonds, and the maturity premium for all bonds is found with the formula MRP = (t-1) x .1%, where t = number of years to maturity. What is the default risk premium (DRP) on Key’s bonds?
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