3. Calculating interest rates The real risk-free rate (c) is 2.8% and is expected to remain constant Inflation is expected to be 3% per year for each of the next two years and 2% 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 Nitreca Chemicals Inc.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating U.S. Treasury Default Risk Premium AAA 0.60% AA 0.80% 1.05% BBB 1.45% Nitreca Chemicals Inc. Issues nine-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. O 5.45% 6.62% 6.879 7.679 Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? O ABB-rated bond has a lower default risk premium as compared to an AA rated bond An AAA-rated bond has less default risk than a BB-rated bond