Explore BrainMass

Explore BrainMass

    The Maturity Risk Premium for Kelly's Bonds

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

    Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium on Kelly's bonds is LP = 2.6% versus zero on T-bonds, and the inflation premium (IP) is 1.5%.

    What is the maturity risk premium?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:46 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/maturity-risk-premium-kellys-bonds-297578

    Solution Preview

    Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.5%, the default risk premium for Kelly's bonds is DRP = 0.40%, the liquidity premium ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what the maturity risk premium is.

    $2.19

    ADVERTISEMENT