Question: The Gergen Group's 5 - year bonds yield 6 . 0 0 % , and 5 - year T - bonds yield 4 . 1

The Gergen Group's 5-year bonds yield 6.00%, and 5-year T-bonds yield 4.10%. The real risk-free rate is r*=1.50%, the default risk premium for Gergen's bonds is DRP =0.75% versus zero for T-bonds, the liquidity premium on Gergen's bonds is LP =1.15%, and the maturity risk premium for all bonds is found with the formula MRP =(t 1)\times 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on 5-year bonds?
a.2.20%
b.1.90%
c.2.17%
d.2.95%
e.0.75%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!