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Kelly Inc's 5-Year Bonds Yield 7

Question 79

Multiple Choice

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 5.80%.The real risk-free rate is r* = 2.5%,the default risk premium for Kelly's bonds is DRP = 0.40%,the liquidity premium on Kelly's bonds is LP = 1.3% versus zero on T-bonds,and the inflation premium (IP) is 1.5%.What is the maturity risk premium (MRP) on all 5-year bonds?


A) 1.51%
B) 1.80%
C) 2.00%
D) 1.46%
E) 2.12%

Correct Answer:

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