EXPECTED INTEREST RATE The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities? DEFAULT RISK PREMIUM A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond? MATURITY RISK PREMIUM The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year/Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security? INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the c ross-product between the real rate and inflation. If the real risk-free rate is 5% and inflation is expected to be 16% each of the next 4 years, what is the yield on a 4-year security with no maturity, default of liquidity risk? (Refer to "The Links Between Expected Inflation and Interest Rates: Closer Look" on page 201.)