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Medium Size Retailer Corporation's (MSRC) 5-year bonds yield 8.75%, and 5-year T-bonds yield 4.50%. The real...

Medium Size Retailer Corporation's (MSRC) 5-year bonds yield 8.75%, and 5-year T-bonds yield 4.50%. The real risk-free rate is r* = 2.45%, the inflation premium for 5-year bonds is IP = 1.65%, the default risk premium for MSRC's bonds is DRP = 2.45% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on MSRC's bonds? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

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ANSWER : LP = 1.85. THANK YOU

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