Keys corporations 5-year bonds yield 570 and 5-year t-bonds, Ask an Expert

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Keys Corporation's 5-year bonds yield 5.70% 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) mc015-1.jpg 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys' bonds?

a. 0.60%

b. 0.98%

c. 0.66%

d. 0.69%

e. 0.80%

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Financial Management, Finance

Category:- Financial Management
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