The default risk premium for niendorfs bonds is drp 1.20, Ask an Expert

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Niendorf Corporation's five-year bonds yield 6.75%, and five-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for five-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?

a) 0.49%

b) 0.55%

c) 0.61%

d) 0.68%

e) 0.75%

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M961516

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