1. A Treasury bond that matures in 10 years has a yield of 5.75%. A 10-year corporate bond has a yield of 7.00%. Assume that the liquidity premium on the corporate bond is 0.50%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.

2.

Suppose the inflation rate is expected to be 6% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r*, will remain at 1% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.

Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities. Round your answers to two decimal places.

Treasury securities	Interest rate
1-year	%
2-year	%
3-year	%
4-year	%
5-year	%
10-year	%
20-year	%