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Maturity Risk Premium

Kelly Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 5.80%. 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 = 1.3% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?
1.80%
2.03%
1.60%
1.37%
2.07%

Solution Summary

The solution explains how to calculate the maturity risk premium

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