3. Calculating interest rates The real risk-free rate (r) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next three years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t1)%, where t is the security's maturity. The liquidity premium (LP) on all Nitreca Chemicals Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Nitreca Chemicals Inc. issues 12 -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. 7.50%6.95%5.25%6.40% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on an AAA-rated bond will be higher than the yield on a BB-rated bond. In theory, the yield on a bond with a longer maturity will be higher than the yleld on a bond with a shorter maturity