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Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.2% per year to maturity applies, i.e.,

Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.50%, a maturity premium of 0.2% per year to maturity applies, i.e., MRP = 0.20%(t), where t is the years to maturity. Suppose also that a liquidity premium of 0.50% and a default risk premium of 1.35% 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. Answer as a percent and to the nearest hundredth of a percent as in xx.xx % and enter without the percent sign.

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