The maturity risk premium $($MRP$)$ is determined from the formula: $0\mathrm{.}10(t-1)\%,$ where $t$ is the security$\text{'}$s maturity. The liquidity premium $($LP$)$ on all

National Transmissions Corp.$\text{'}$s bonds is $1\mathrm{.}10\%.$ The following table shows the current relationship between bond ratings and default risk premiums

$($DRP$)$:

National Transmissions Corp. issues thirteen$-$year, AA$-$rated bonds. What is the yield on one of these bonds? $($Hint: Disregard cross$-$product terms;

that is$,$ if averaging is required, use an arithmetic average.$)$

$8\mathrm{.}02\%$

$7\mathrm{.}92\%$

$5\mathrm{.}90\%$

$9\mathrm{.}12\%$

Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true?

Higher inflation expectations increase the nominal interest rate demanded by investors.

The yield on U$.$S$.$ Treasury securities always remains static.