Keys Corporation's 5-Year Bonds Yield 6

Multiple Choice

Keys Corporation's 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%.The real risk-free rate is r* = 2.5%,the inflation premium for 5-year bonds is IP = 1.50%,the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T-bonds,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 default risk premium (DRP) on Keys' bonds?

A) 1.17%
B) 1.30%
C) 1.43%
D) 1.57%
E) 1.73%