lons O b. Oct.25 p.p. Save Suppose the real risk-free rate is 3.85%, the average future inflation rate is 1.75%, a maturity premium of 0.25% per year to maturity applies, i.e., MRP = 0.25%(t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 2.00% applies to A-rated corporate bonds. What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average. O a 3.25 p.p. O d. 2.50 p.p. 00 e 1.75 pp. Question 18 of 35

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