Suppose you are considering two possible investment opportunities , a 12 - year Treasury bond and a 7 - year , A - rated cor porate bond . The current real risk - free rate is 4 / ; and inflation is expected to be 2 % for the next 2 years , 3 % for the following 4 years , and 4 / thereafter . The maturity risk premium is estimated by this formula : MRP = 102 ( 1 - 1 % . The liquidity premium ( IP ) for the corporate bond is estimated to be 1. 3% . You may determine the default risk premium ( DRP ) , given the company's bond rating from the table below . Remember to subtract the bond's IP from the corporate spread given in the able to arrive at the bond's DRE . What yield would you predict for each of these two investments ? Given the following Treasury bond yield information , construct a graph of the yield curve . Maturity Periods Years Yield 1 year 100 5.37 % 2 years 200 5. 470% 3 years 3.00 5. 65% 4 years 4.00 5718 5 years 500 5. 64% 10 years 10.00 75% 20 years 20.00 63 390 30 year 30.00 5. 940% Now we can use a scatter chart to construct a yield curve I . 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