Calculate decimals to four places.

23. The real risk-free rate of interest, r*, is 4%, and is expected to remain constant over

time. Inflation is expected to be 2% per year for the next three years, after which time inflation

is expected to remain constant at 5% per year. The maturity risk premium is equal to 0.1(t-1)%,

where t = the bond's maturity. Default risk is 1 %, and the liquidity premium is 1.5% on corporate

bonds of similar maturity. What is the yield on a 10-year Treasury?

a. 8.1%

b. 8.9%

c. 9.0%

d. 9.1%

e. none of the above