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 $4\%,$ and inflation is expected to be $2\%$ for the next $2$ years, $3\%$ for the following $4$ years, and $4\%$ thereafter. The maturity risk

premium is estimated by this formula: MRP $=0\mathrm{.}03(t-1)\%.$ The liquidity premium $($LP$)$ for the corporate bond is estimated to be $0\mathrm{.}2\%.$ 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.

Choose the correct graph.