2. How is the nominal rate of return for long-term Treasury bonds computed?

A) Nominal rate of return = real-risk free rate of interest + inflation premium

B) Nominal rate of return = real-risk free rate of interest + inflation premium + maturity risk premium

C) Nominal rate of return = real-risk free rate of interest + inflation premium + maturity risk premium + default-risk premium

D) Nominal rate of return = real-risk free rate of interest + inflation premium + maturity risk premium + default-risk premium + liquidity risk premium

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3. What is the nominal rate of return of a 10-year Treasury bond if the prevailing risk premiums are as follows: real-risk free rate is 2.0%; inflation premium is 5.0%; maturity risk premium is 0.3%; and default risk premium is 0.2%.

A) 2.00%

B) 7.00%

C) 7.30%

D) 7.50%

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Show your calculations and explanations please.

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