What is the inflation premium on five-year bonds

Reference no: EM13292504

Patricia Corporation's five-year bonds yield 6.85%, and five-year T-bonds yield 4.75%. The real risk-free rate is r* = 2.80%, the default risk premium for Patricia's bonds is DRP = 0.85% versus zero for T-bonds, the liquidity premium on Patricia's bonds is LP = 1.25%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on five-year bonds?

Reference no: EM13292504

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