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What is the liquidity premium on Niendorf bonds

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Reference no: EM132826162

Question - Niendorf Corporation's 5-year bonds yield 6.75%, and 5-year T-bonds yield 4.80%. The 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% vs. 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 Niendorf's bonds?

a. 0.49%

b. 0.55%

c. 0.61%

d. 0.68%

e. 0.75%

Reference no: EM132826162

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