The real risk$-$free rate $(r^{**})$ is $2\mathrm{.}80\%$ and is expected to remain constant into the future. Inflation is expected to be $4\mathrm{.}05\%$ per year for each of the next

three years and $2\mathrm{.}85\%$ thereafter.

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

Sacramone Products Co$.\text{'}$s bonds is $1\mathrm{.}10\%.$ The following table shows the current relationship between bond ratings and default risk premiums $($DRP$)$:

Sacramone Products Co$.$ issues fifteen$-$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.$)$