Liquidity Premium (LP) on Bonds
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Niendorf Corporation has 5 year bonds with yield 9.50%, and 5-year T-bonds with yield 4.80%. Real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% with zero for T-bonds, and maturity risk premium for all bonds is found with the formula MRP = (t - 1) 0.1%, t = # of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?
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The difference in the yield between the Niendorf bond and the T-bond would be due to ...
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