b$.$ Suppose you are considering two possible investment opportunities: a $12-$year Treasury bond and a $7-$year, AA$-$rated corporate bond. The current real risk$-$free rate is $3\%,$ an

inflation is expected to be $3\%$ for the next $2$ years, $4\%$ for the following $4$ years, and $5\%$ thereafter. The maturity risk premium is estimated by this formula: MRP $=0\mathrm{.}03(t-$

Activity Frame The liquidity premium $($LP$)$ for the corporate bond is estimated to be $0\mathrm{.}3\%.$ You may determine the default risk premium $($DRP$),$ given the company's bond rating, from

the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP$.$

Corporate Bond Yield

What yield would you predict for each of these two investments? Round your answers to three decimal places.

$12-$year Treasury yield:

$\%$

$7-$year Corporate yield:

$\%$

c$.$ Given the following Treasury bond yield information, construct a graph of the yield curve.