Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.20% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the number of years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 1.30% applies to A-rated corporate bonds. What is the difference in the yields on a 5-year A-rated corporate bond and on a 10-year Treasury bond? Here we assume that the pure expectations theory is NOT valid, and disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average O 0.66% 0.80% O 0.86% O 0.93% O 0.92% Inflation is expected to increase steadily over the next 10 years, there is a positive maturity risk premium on both Treasury and corporate bonds, and the real risk-free rate of interest is expected to remain constant. Which of the following statements is CORRECT? The yield on any corporate bond must exceed the yields on all Treasury bonds. The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope. The yield on 7-year corporate bonds must exceed the yield on 10-year Treasury bonds. The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities. The stated conditions cannot all be true - they are internally inconsistent