The Gergen Group's 5-Year Bonds Yield 6

The Gergen Group's 5-year bonds yield 6.85%,and 5-year T-bonds yield 4.75%.The real risk-free rate is r* = 2.80%,the default risk premium for Gergen's bonds is DRP = 0.85% versus zero for T-bonds,the liquidity premium on Gergen's bonds is LP = 1.25%,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 inflation premium (IP) on 5-year bonds?

A) 1.40%
B) 1.55%
C) 1.71%
D) 1.88%
E) 2.06%

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Sign up to view answer