1) The real risk-free rate (r') is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next five years and 7% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Harrington Horticulture Co.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury- AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Harrington Horticulture Co. issues 11-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. [Select] 2) Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? [Select]