What is the liquidity premium on discos bonds, Finance Basics

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What is the liquidity premium on discos bonds

Problem

Disco Corporation's 10-year bonds yield 8.35%, and 10-year T-bonds yield 2.80%. The real risk-free rate is r' = -2.75%, the inflation premium for 10-year bonds is IP = 4.65%, the default risk premium for Disco's bonds is DRP = 4.60% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1) x0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Disco's bonds?

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