question archive Crockett Corporation's 5-year bonds yield 6
Subject:BusinessPrice: Bought3
Crockett Corporation's 5-year bonds yield 6.35%, and 5-year T-bonds yield 4.75%. The real risk-free rate is r* = 5.63%, the default risk premium for Crockett's bonds is DRP = 2.00% versus zero for T-bonds, the liquidity premium on Crockett's bonds is LP = 2.90% versus zero for T bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, where t = number of years to maturity. What inflation premium (IP) is built into 5-year bond yields? * a) 0.68% b) 0.75% c) 0.83% d) 5.96% e) None of the above