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Suppose the real risk-free rate is 0.50%, the average future inflation rate is 1.50%, a maturity premium of 0.1% per year to maturity applies, i.e.,

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Suppose the real risk-free rate is 0.50%, the average future inflation rate is 1.50%, a maturity premium of 0.1% per year to maturity applies, i.e., MRP = 0.1%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.45% and a default risk premium of 1.35% applies to A-rated corporate bonds. What is the difference in the yields (interest rates) on a 5-year A-rated corporate bond and on a 10-year Treasury bond? Select one: O a. 2.5% b. 1.4% c. 0.9% d. 0% O e. 1.3%

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