Kern Corporation's 5-year bonds yield 7.50% and 5-year T-bonds yield 4.30%. The real risk-free rate is r* = 2.5%, the default risk premium for Kern's bonds is DRP = 1.90% versus zero for T-bonds, the liquidity premium on Kern's bonds is LP = 1.3%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) 
0.1%, where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds?
0.1%, where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds?A. 1.40%
B. 1.64%
C. 1.32%
D. 1.06%
E. 1.19%
Answer: A
Business
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