3. Calculating interest rates The real risk-free rate () is 2,8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next two years and 5% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1t - 1)%, where is the security's maturity. The liquidity premium (LP) on all Berth Construction Inc.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Default Risk Premium Rating U.S. Treasury AAA 0,60% AA 0.80 A 1.0594 BBB 1.4596 Berth Construction Ince issues seven year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross product terms that is, it averaging is required, use the arithmetic average 9.94 9.49 Berth Construction Inc. issues seven-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 9.94% 9.49% 10.54% 5.25% Based on your understanding of the determinants of interest rates, if overything else remains the same, which of the following will be true; In theory, the vield on a bond with a longer maturity will be higher than the yield on a bond with a shorter maturity, ABBB rated bond has a lower default risk premium as compared to an AAA rated bond