Suppose the real risk$-$free rate of interest is r$*=3\%$

r

$*$

$=$

$3$

$\%$

and it is expected to remain constant over time. Inflation is expected to be $1\mathrm{.}40\%$ per year for the next $3$ years and $3\mathrm{.}80\%$ per year for the next $5$ years. The maturity risk premium is $0\mathrm{.}1\backslash$times $($t$1)\%$

$0\mathrm{.}1$

$\backslash$times

t

$$

$1$

$\%$

$,$ where t

t

is number of years to maturity, a liquidity premium is $0\mathrm{.}25\%,$ and the default risk premium for a corporate bond is $1\mathrm{.}90\%.$

Complete the following table by calculating yields on Treasury and corporate bonds of various maturity.

Value

The yield on a $4-$year Treasury bond

The yield on a $4-$year corporate bond

The yield on a $8-$year Treasury bond

The yield on a $8-$year corporate bond

Expected inflation in $9$ years, if the yield on a $9-$year Treasury bond is $6\mathrm{.}93\%$