1. Assume that the real risk-free rate, r*, is 3% and that inflation is expected to be 8% in Year 1, 5% in Year 2, and 3% thereafter. Assume also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2? 2. An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 8.6%. One bond, Bond C, pays an annual coupon of 10%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Assume time 0 is today. 3.Absalom Motors's 11% coupon rate, semiannual payment, $1,000 par value bonds that mature in 10 years are callable 8 years from now at a price of $1,050. The bonds sell at a price of $1,300, and the yield curve is flat. Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds?