1. You read in The Financial Mail that 30-day T-bills currently are yielding 7.5%. One of your close friends has given you the following estimates of current interest rate premiums: Liquidity premium 1% Maturity risk premium 2% Default risk premium 2% He indicated that the real risk-free rate of return is 3.5%. Calculate the inflation premium. 2. Assume the following about the expected inflation: Year Increasing inflation 11.20% 2 1.75% 3 2.05% 4 2.30% The real risk-free rate (r*) is 2.75% and the investors demand a 0.1% maturity risk premium for each year remaining until maturity. Calculate the interest rate of a bond with a maturity of 4 years taking the various premiums into account. (2) A. 2.75% B. 3.15% C. 4.58% D. 4.98% E. 7.33% 3. A bond is paying a 7.40% coupon semi-annually. The face value is R1 000 and the current market price is R1 050. The bond matures in 16 years; however, the bond is callable in 3 years' time for R1 250.59 Calculate the yield-to-maturity (YTM). (2) 60 Calculate the yield-to-call (YTC) ns an