Explore BrainMass

Explore BrainMass

    Liquidity premium

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Kay Corporation's 5-year bonds yield 7.20% 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 default risk premium for Kay's bonds is DRP = 1.30% 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 liquidity premium (LP) on Kay's bonds?
    1.50%
    1.50%
    1.16%
    1.76%
    1.41%

    © BrainMass Inc. brainmass.com June 3, 2020, 11:55 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/liquidity-premium-308103

    Solution Summary

    The solution explains how to calculate the liquidity premium

    $2.19

    ADVERTISEMENT