Question: 25) Hint: r = r* + IP + DRP + LP + MRP; The 5-Year Bonds on Great Mt. Corp. are yielding 8.10% per year.

25) Hint: r = r* + IP + DRP + LP + MRP; The 5-Year Bonds on Great Mt. Corp. are yielding 8.10% per year. Treasury Notes with the same Maturity are yielding 5.65%. The Real risk-free rate (r*) has not changed in recent years and is 2.5%. The Average Inflation Premium is 2.75%; Maturity Risk Premium takes the form MRP=.1% (t-1) where t = number of years to maturity; If the Liquidity Premium is 1.2%; What is the Default Premium of Great Mt. Corp? A.2.25% B. 2.85% C. 1.25% D. 1.75%

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