Kern Corporation's 5-year bonds yield 6.80% and 5-year T-bonds yield 3.60%. 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) mc070-1.jpg 0.1%, where t = number of years to maturity. What is the inflation premium (IP) on all 5-year bonds?
0.70%
0.60%
0.81%
0.86%
0.85%