You Are Given the Following Data Assume That a Highly Liquid Market Does Not Exist for c

Multiple Choice

You are given the following data:
$\begin{array} {| l | c | } \hline r ^ { * } = \text { real risk-free rate } & 4 \% \\\hline \text { Constant inflation premium (IP) } & 7 \% \\\hline \text { Maturity risk premium (MRP) } & 1 \% \\\hline \text { Default risk premium for AAA bonds (DRP) } & 3 \% \\\hline \begin{array} { l } \text { Liquidity premium for long-term Treasury } \\\text { bonds (T-bonds) (LP) }\end{array} & 2 \% \\\hline\end{array}$
Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. Given these conditions, the rate on long-term Treasury bonds is _____.

A) 23 percent
B) 11 percent
C) 14 percent
D) 19 percent
E) 27 percent