Q$\mathrm{.}4.$ The real risk free rate of interest, $r**,$ is $3\%$; and it is expected to remain constant over time. Inflation is expected to be $2\%$ per year for the next $3$ years and $4\%$ per year for the next $5$ years. The maturity risk Premium is equal to $0\mathrm{.}1(t-1)\%,$ where $t=$ the bond's maturity. The default risk premium for a BBB$-$rated bond is $1\mathrm{.}3\%.(20$ p$.)$

a$-$What is the average expected inflation rate over the next $4$ years?

c$-$What is the yield on a $4-$year Treasury bond?

$b-$What is the yield on a $4-$year BBB$-$rated corporate bond with a liquidity premium of $0\mathrm{.}5\%?$

d$-$Suppose you invest in securities in the financial markets as an individual investor, which bond $($or bonds$)$ would you like to invest if you don't like risk, and why?