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Please work out Problem! Suppose the real risk-free rate is 4.20%, the average future inflation rate is 50%, a maturity premium of 0.15% per year

Please work out Problem!

Suppose the real risk-free rate is 4.20%, the average future inflation rate is 50%, a maturity premium of 0.15% per year to maturity applies, i.e., MRP = 0.15%(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 3.00% 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.

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