13-1 Suppose that economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A one- year Treasury note offers a rate of return equals to 5.6 percent. You are evaluating two corporate bonds: (1) Bond A has a rate of return, CA, equal to 8 percent; (2) Bond B has a rate of return, TB, equal to 7.5 percent. Except for their maturities, these bonds are identical - Bond A matures in 10 years, whereas Bond B matures in five years. You have determined that both bonds are very liquid, and thus neither bond has a liquidity premium. Assuming that there is an MRP for bonds with maturities equal to one year or greater, compute the annual MRP. And assume that the MRP increases linearly. What is the DRP associated with corporate bonds? (Hint: Solve for MRP on t-note for one year and assume it increases at the same rate each year.)