FINANCE

George is in the process of evaluating various securities. He has gathered the following information. Inflation is expected to be 2% in the next two years and 3.5% every year after that. The real interest rate is expected to stay at 0.5% for the next 10 years. The default risk premium on relevant securities is 3% and the liquidity premium is 0.75%. Estimates show that the maturity risk premium is 0.2 (t 1)%, where t = number of years to maturity.

a. Calculate the yield on a 1-year treasury bill. Show your calculations. Round to two decimal places (eg. 2.57%).

b. Calculate the yield on a 6-year corporate bond. Show your calculations. Round to two decimal places (eg. 2.57%).