(Answered) Kay corporation 5-year bonds yield 620 and 5-year t-bond

Finance

Kay corporation 5-year bonds yield 6.20% and 5-year T-bond yield 4.40%. The real risk rate is r*=2.5% the inflation premium for 5-years bonds is IP= 1.50%, the default risk premium for Kay's bond is DRP is 1.30% versus zero for T-bonds and the maturity risk premium for all bonds is found with the formula MRP = (t-1) x0.1% where t= number of years to maturity. What is the liquity premium on Kay's bonds?

a. 0.52%

b. 0.56%

c. 0.61%

d. 0.38%

e.0.50%

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