Ch 06: Assignment-Interest Rates is e tobe 4% per year for The real risk-free rate (r*) is 2.8% and is expected to remain each of the next five years and 3% thereafter. 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 Tahoe Hydroponics's bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP) The Rating Default Risk Premiunm U.S. Treasury 0.60% 0.80% 1.05% Tahoe Hydroponics issues 11-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. 0 8.05% 8.60% o 5,15% O 7.60% 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 B8-rated bond. O A AAA-rated bond has less default risk than a BB-rated bond. Type here to search