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Kern Corporation's 5-year bonds yield 8.20% and 5-year T-bonds yield 4.70%. The real risk-free rate...

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Finance

Kern Corporation's 5-year bonds yield 8.20% and 5-year T-bonds yield 4.70%. The real risk-free rate is r* = 3.20%, the default risk premium for Kern's bonds is DRP = 2.20% versus zero for T-bonds, the liquidity premium on Kern's bonds is LP = 1.30%, 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 all 5-year bonds?

a. 2.20%
b. 1.07%
c. 1.10%
d. 0.90%
e. 2.10%

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