Determining the liquidity premium on niendorf bonds


Niendorf Corporation's 5-year bonds yield 9.50%, and 5-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for Niendorf's bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) mc066-1.jpg 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf's bonds?

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Finance Basics: Determining the liquidity premium on niendorf bonds
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