kEk+IP+ DRP LP MRP Here k Required rate of return on a debt security. k*= Real risk-free rate IP Inflation premium DRP E Default risk premium LP E Liquidity premium MRP= Maturity risk premium Copy right C 2002 by Harcourt, Inc. All rights reserved5 - 9 Copyright © 2002 by Harcourt, Inc. All rights reserved. k = k* + IP + DRP + LP + MRP. Here: k = Required rate of return on a debt security. k* = Real risk-free rate. IP = Inflation premium. DRP = Default risk premium. LP = Liquidity premium. MRP = Maturity risk premium