Determinants of the interest rates

The real risk free rate is r*= 2.5%. And a constant 2% rate of inflation is expected over the following years. The maturity risk premium for all bonds is found with the formula MRP= (t-1)*0.1%, where t = number of years to maturity.

1. What rate of return would you expect on a 3-year Treasury security?
2. The default risk premium for Kern Corporations bonds is DRP = 1.90% and the liquidity premium on the bonds is LP = 1.3% What rate of return would expect on a 3 year bond issued by Kern Corporations?