3. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next four years and 6% 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 0.55%. 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 0.8096 1.05% BBB 1.45% Nitreca Chemicals Inc. Issues fourteen-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. 5.45% 10.4496 11.7496 11.19% Based on your understanding of the determinants of interest rates, If everything else rerains the same, which of the following will be true? The yield on an AAA-rated bond will be lower than the yield on an AA-rated bond. The yield on U.S. Treasury securities always remains static