Suppose the inflation rate is expected to be 6.75% next year, 4% the following year, and 3.5% thereafter. Assume that the real risk-free rate, r*, will remain at 1.55% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. a. Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places. % Calculate the interest rate on 20-year Treasury securities. Round your answer to two decimal places. % Select the correct yield curve based on these data. A 10 Interest Rate (%) 9 HNWOO 2 4 6 8 10 12 14 16 18 Years to Maturity B I Interest Rate (%) 101 8 7+ 6 5 4- 3 2+ -3 2 4 6 8 10 12 14 16 18 Years to Maturity C Interest Rate (%) 10! 8 7 6 5 4 3 2- 1 N 4 6 8 10 12 14 16 18 Years to Maturity D 10 Interest Rate (%) 6 5 4 3 22 1 4 2 4 6 8 10 12 14 16 18 Years to Maturity The correct sketch is -Select- b. Suppose a AAA-rated company (which is the highest bond rating a firm can have) had bonds with the same maturities as the Treasury bonds. Estimate what you believe a AAA-rated company's yield curve would look like on the same graph with the Treasury bond yield curve. (Hint: Think about the default risk premium on its long-term versus its short-term bonds.) The yield risk curve for the AAA-rated corporate bonds will Select the yield curve for the Treasury securities. c. What will be the approximate yield curve of a much riskier lower-rated company with a much higher risk of defaulting on its bonds? the yield curve for the Treasury securities and -Select- the yield curve for The yield risk curve of a much riskier lower-rated company will be Select the AAA-rated corporate bonds