Kern Corporation's 5-Year Bonds Yield 7 $\times$ 0)1%,where T = Number of Years to Maturity

Multiple Choice

Kern Corporation's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.30%.The real risk-free rate is r* = 2.5%,the default risk premium for Kern's bonds is DRP = 1.90% versus zero for T-bonds,the liquidity premium on Kern's bonds is LP = 1.3%,and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) $\times$
0) 1%,where t = number of years to maturity.What is the inflation premium (IP) on all 5-year bonds?

A) 1.40%
B) 1.64%
C) 1.32%
D) 1.06%
E) 1.19%