Question: Squire Inc. ' s 5 - year bonds yield 1 1 . 2 5 % , and 5 - year T - bonds yield 4

Squire Inc.'s 5-year bonds yield 11.25%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r*=2.75%, the inflation premium for 5-year bonds is IP =1.65%, the default risk premium for Squire's bonds is DRP =1.20% 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 Squire's bonds?

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