Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.70%.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 = 2.4% 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) 0.73%
B) 0.70%
C) 0.55%
D) 0.74%
E) 0.57%
Correct Answer:
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