9. Calculating interest rates The real risk-free rate (r) is 2.8% and is expected to remain constant. Inflation is expected to be 4% per year for each of the next two years and >> thereafter. The maturity risk premium (MRP) is determined from the formula: 0.16 - 13%, where t is the security's maturity. The laddity premium (LP) on all Dare Satellite Corp's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DP): Default Risk Premium Rating U.S. Treasury AAA 0.609 0.809 AA A 1.056 BBB 1.4596 Dare Satellite Corp. issues 13-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, averaging is required, use the arithmetic average. 0 7.95% O 7.30% O 8.50% O 5.35% 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 a AAA-rated bond will be lower than the yield on a AA rated bond. The yield on U.S. Treasury securities always remains static