Suppose you are considering two possible investment opportunities: a $12-$year Treasury bond and a $7-$year, A$-$rated corporate bond. The current real risk$-$free rate is $5\%,$ and inflation is expected to be $3\%$ for the next $2$ years, $4\%$ for the following $4$ years, and $5\%$ thereafter. The maturity risk premium is estimated by this formula: MRP $=0\mathrm{.}01($t $-1)\%.$ The liquidity premium $($LP$)$ for the corporate bond is estimated to be $0\mathrm{.}3\%.$ You may determine the default risk premium $($DRP$),$ given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP$.$

Corporate Bond Yield

Rate Spread $=$ DRP $+$ LP

U$.$S$.$ Treasury $0\mathrm{.}73\%$

AAA corporate $0\mathrm{.}930\mathrm{.}20\%$

AA corporate $1\mathrm{.}290\mathrm{.}56$

A corporate $1\mathrm{.}710\mathrm{.}98$

What yield would you predict for each of these two investments? Round your answers to three decimal places.

$12-$year Treasury yield: fill in the blank $\_\_\_\_\_\_\%$

$7-$year Corporate yield: fill in the blank $\_\_\_\_\_\_\_\_\%$

Based on the information about the corporate bond provided in part b$,$ calculate yields and then construct a new yield curve graph that shows both the Treasury and the corporate bonds. Round your answers to two decimal places.

Years; Treasury yield A$-$corporate yield

$15\mathrm{.}27\%$ fill in the blank $\%$

$25\mathrm{.}32\%$ fill in the blank $\%$

$35\mathrm{.}47\%$ fill in the blank $\%$

$45\mathrm{.}54\%$ fill in the blank $\%$

$55\mathrm{.}45\%$ fill in the blank $\%$

$105\mathrm{.}58\%$ fill in the blank $\%$

$206\mathrm{.}12\%$ fill in the blank $\%$

$305\mathrm{.}74\%$ fill in the blank $\%$

Using the Treasury yield information in part c$,$ calculate the following rates using geometric averages $($round your answers to three decimal places$)$:

The $1-$year rate, $1$ year from now

fill in the blank $\%$

The $5-$year rate, $5$ years from now

fill in the blank $\%$

The $10-$year rate, $10$ years from now

fill in the blank $\%$

The $10-$year rate, $20$ years from now

fill in the blank $\%$