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Niendorf Corporation's 5-year bonds yield 7

Finance

Niendorf Corporation's 5-year bonds yield 7.30% and 5-year T-bonds yield 5.70%. The real risk-free rate is r* = 3.00%, the inflation premium for 5-year bonds is IP = 2.20%, the liquidity premium for Niendorf's bonds is LP = 0.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t) × 0.10%, where t = number of years to maturity. What is the default risk premium (DRP) on Niendorf's bonds?

 

a.  1.10%

b.  1.20%

c.  1.30%

d.  1.40%

e.  1.50%

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