4. Calculating interest rates a Aa The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 796 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 BTR warehousing's bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP) Rating U.S. Treasury Default Risk Premium 0.60% 0.80% 1.05% 1.45% BTR Warehousing issues 15-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. O 6.05% 12.32% O 10.92% 11.27% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? O The yield on a AAA-rated bond will be higher than the yield on a BB-rated bond O Higher inflation expectations increase the nominal interest rate demanded by investors