1- The real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.25% during the next two years. Assume that the maturity risk premium (MRP) is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities? (HINT: r = r* + IP + DRP + LP + MRP; DRP=LP=MRP=0)

2- The real risk-free rate, r*, is 1.7%. Inflation is expected to average 1.5% a year for the next 4 years, after which time inflation is expected to average 4.8% a year. Assume that there is no maturity risk premium. An 11-year corporate bond has a yield of 8.7%, which includes a liquidity premium of 0.3%. What is the default risk premium (DRP)?

(HINT: r = r* + IP + DRP + LP + MRP; MRP = 0)