Question: Please Answer quickly for thumbs up 33 34 Suppose the real risk-free rate is 2.8%, the average future inflation rate is 4.9%, a maturity premium


Suppose the real risk-free rate is 2.8%, the average future inflation rate is 4.9%, a maturity premium of 0.05% per year to maturity applies, i.e., MRP 0.05%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.8% and a default risk premium of 1% applies to A-rated corporate bonds. How much higher would the rate of return be on a 9-year A-rated corporate bond than on a 5-year Treasury bond. Here we assume that the pure expectations theory is NOT valid. O 2.00% O 2.10% O 2.20% O 2.40% 2.30% Keys Corporation's 5-year bonds yield 7.8%, and 5-year T-bonds yield 5.9%. The real risk-free rate is r* = 2.2%, the inflation premium for 5 years bonds is IP = 3.3%, the default risk premium for Keys' bonds is DRP = 0.48% 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 Keys' bonds? O 1.32% O 1.22% O 1.52% O 1.12% O 1.42%
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