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Pistol Pete's Platinum Palace has outstanding 5 year corporate bonds with a current yield of 6.50%....

Pistol Pete's Platinum Palace has outstanding 5 year corporate bonds with a current yield of 6.50%. 5-Year T-Bonds have a current yield of 4.00%. The default risk premium for Pete's bonds is DRP = 0.40%. The liquidity premium on Pete's bonds is 1.70%. The current inflation premium is 1.5% and the maturity risk premium on 5 year bonds is 0.40%. What is the real risk-free rate, r*?

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

r* = 2.50%

jeff jeffy answered 1 month ago
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