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  3. kop corporation's 5-year bonds yield 6.70%, and t-

Kop Corporation's 5-year bonds yield 6.70%, and T-bonds with the same maturity yield 4.75%. The...

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Accounting

Kop Corporation's 5-year bonds yield 6.70%, and T-bonds with the same maturity yield 4.75%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 1.55% versus zero on T-bonds, the inflation premium (IP) is 1.25%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?

a. 1.55%
b. 4.35%
c. 3.50%
d. 2.70%

e. 3.10%

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