Keys Corporation's 5-year bonds yield 7.70%
Question # 00548916
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Updated on: 06/19/2017 06:42 AM Due on: 06/19/2017
Keys Corporation's 5-year bonds yield 7.70% 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) 0.1%, where t = number of years to maturity. What is the default risk premium (DRP) on Keys' bonds?
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Rating:
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Solution: Keys Corporation's 5-year bonds yield 7.70%