LS. Question 15 (1 point) Suppose the real risk-free rate is 3.25%, the average future inflation rate is 14.35% and a matunty nisk premium of 0.07% per year to maturity applies to both corporate and T-bonds, 10 MRP 0,07%), where is the number of years to matunty. Suppose also that a liquidity premium of 50% and a default risk premium of 2 50% apply to A-rated corporate bonds but not to T-bonds. How much higher would the rate of return be on a 10-year A-rated corporate bond than on a 5-year Treasury bond? Here we assume that the pure expectations theory is NOT valid Disregard cross- product terms, i.e., if averaging is required, use the arithmetic average. 1.90 3.35 2.50 2.60 2215 Page 3 of 4 Previous Page Next P