Keys Corporation's 5-year bonds yield 5.10% and 5-year T-bonds yield 4.40%.The real risk-free rate is r* = 2.5%,the inflation premium for 5-year bonds is IP = 1.50%,the liquidity premium for Keys' bonds is LP = 0.5% 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 default risk premium (DRP) on Keys' bonds?
A) 0.17%
B) 0.20%
C) 0.24%
D) 0.19%
E) 0.22%
Correct Answer:
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