Question: Lee Corp. ' s 5 - year bonds yield 7 . 8 0 % and 5 - year T - bonds yield 5 . 2

Lee Corp.'s 5-year bonds yield 7.80% and 5-year T-bonds yield 5.20%. 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 Lee's bonds is DRP =1.50% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP =(t 1)\times 0.3%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay's bonds?

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