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What is the liquidity premium on msrc bonds

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Reference no: EM132533219

Medium Size Retailer Corporation's (MSRC) 5-year bonds yield 8.25%, and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.45%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for MSRC's bonds is DRP = 2.45% versus zero for T-bonds, 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.

Question 1: What is the liquidity premium (LP) on MSRC's bonds?

Reference no: EM132533219

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