Solved: The real risk-free rate is r 25 the default risk premium, Business Management

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The real risk-free rate is r 25 the default risk premium

Allen Inc's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.90%. The real risk-free rate is r* = 2.5%, the default risk premium for Allen's bonds is DRP = 0.40%, the liquidity premium on Allen's bonds is LP = 2.2% versus zero on T-bonds, and the inflation premium (IP) is 1.5%. What is the maturity risk premium (MRP) on all 5-year bonds?

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