Kop Corporation's 5-year bonds yield 6.50%, and T-bonds with the same maturity yield 4.70%. The default risk premium for Kop's bonds is DRP = 0.40%, the liquidity premium on Kop's bonds is LP = 1.40% versus zero on T-bonds, the inflation premium (IP) is 1.50%, and the maturity risk premium (MRP) on 5-year bonds is 0.40%. What is the real risk-free rate, r*?
a. 2.35%
b. 2.80%
c. 2.91%
d. 3.16%
e. 2.72%