$4\mathrm{.}4\%,$ a maturity premium of $0\mathrm{.}08\%$ per year to maturity applies, i$.$e$.,$ MRP $=0\mathrm{.}08\%(t),$ where $t$ is the years to maturity. Suppose also that a liquidity premium of $0\mathrm{.}7\%$ and a default risk premium of $1\%$ applies to A$-$rated corporate bonds. How much higher would the rate of return be on a $6-$year A$-$rated corporate bond than on a $5-$year Treasury bond. Here we assume that the pure expectations theory is NOT valid.

$1\mathrm{.}58\%$

$2\mathrm{.}18\%$

$2\mathrm{.}38\%$

$1\mathrm{.}78\%$

$1\mathrm{.}98\%$