Recall that on a one-year Treasury security the yield is 4.9200% and 6.6420% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0,4%. What is the market's estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.) 6.4435% 0 7.5806% 8.6419% 9.6274% The real risk-free rate (r) is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next five years and thereafter The maturity risk premium (MRP) is determined from the formula: 0.1(t-1)%, where is the security's maturity. The liquidity premium (LP) on all Harrington Horticulture Co's bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premium (ORP): Default Risk Premium 1) Rating U.S. Treasury AAA AA 0.60% 0.809 1.05% 1.45% A BBB Harrington Horticulture Co. Issues 9-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, averaging is required, use the arithmetic average 11.96% CENGAGE | MINUTAP ScroSD X Ch 06- Assignment - Interest Rates Kating Derauit RISK Premium U.S. Treasury AAA 0.60% AA 0.80% 1.05% A BBB 1.45% Harrington Horticulture Co. issues 9-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 11.96% 13.01% 12.21% 5.45% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on an AAA-rated bond will be lower than the yield on an AA-rated bond. A BBB-rated band has a lower default risk premium as compared to an AAA-rated bond. Grade It Now Save & Continue