1. Gilligan Co.'s bonds currently sell for $1,150. They have a 8% annual coupon rate and a 14-year maturity, a $1,000 par value, and are callable in 8 years at $1,080.00. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM? (Calculate the YTC or YTM) (Round your answer to 2 decimal places.)

2. The Gergen Group's 7-year bonds yield 10%. The real risk-free rate is r* = 2.70%, the default risk premium for Gergen's bonds is DRP = 1.4% versus zero for T-bonds, the liquidity premium on Gergen's bonds is LP = 1.50%, and the maturity risk premium for all bonds is found with the formula MRP = (t - 1)*0.1%, where t = number of years to maturity. What is the inflation premium (IP) on 7-year bonds? (Round your answer to 2 decimal places.)