SIITII C I II LITI EXPECTED INTEREST RATE The real risk-free rate is 3.25%. Inflation is expected to be 1.75% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. a. What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. % b. What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places. % UICI ILI U TUULII CUOIETTI DEFAULT RISK PREMIUM A Treasury bond that matures in 10 years has a yield of 4.25%. A 10-year corporate bond has a yield of 10%. Assume that the liquidity premium on the corporate bond is 0.25%. What is the default risk premium on the corporate bond? Round your answer to two decimal places. Quantitative Problem: An analyst evaluating securities has obtained the following information. The real rate of interest is 2.8% and is expected to remain constant for the next 5 years. Inflation is expected to be 2.1% next year, 3.1% the following year, 4.1% the third year, and 5.1% every year thereafter. The maturity risk premium is estimated to be 0.1 ~ (t - 1)%, where t = number of years to maturity. The liquidity premium on relevant 5-year securities is 0.5% and the default risk premium on relevant 5-year securities is 1%. a. What is the yield on a 1-year T-bill? Round your intermediate calculations and final answer to two decimal places. % b. What is the yield on a 5-year T-bond? Round your intermediate calculations and final answer to two decimal places. % c. What is the yield on a 5-year corporate bond? Round your intermediate calculations and final answer to two decimal places. %