3. Calculating Interest rates The real risk-free rate (r) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next two years and 4% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.17 - 1)%, where t is the security's maturity. The liquidity premium (IP) on all Harrington Horticulture Co.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (ORP): Default Risk Premium Rating U.S. Treasury AAA 0,60% AA 0.80%