1. Firm AAA's five year bonds yield = 8% and five year Treasury bonds yield = 5%. The real risk free rate, r* = 2%; default risk premium for AAA's bonds DRP = 0.50%; Liquidity premium on AAA bonds LP = 2%and zero on Treasury bonds;inflation premium (IP) = 1.5%. Calculate for maturity risk premium.
2. Firm AAA's five-year bonds yield = 7% and a five-year Treasury bonds yield = 4%. The real risk-free rate, r* = 2.5%; inflation premium for five-year bonds, IP = 1.50%; the default risk premium for AAA's bonds DRP = 2% and zero for Treasury bonds; maturity risk premium for all bonds, MRP = (t - 1) × 0.1%, where t = number of years to maturity. Calculate for liquidity premium (LP) on AAA's bonds?