The real risk-free rate (**) is 2.80% and is expected to remain constant into the future. Inflation is expected to be 5.10% per year for each of the next three years and 3.90% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.10 x (t-1)%, where is the security's maturity. The liquidity premium (LP) on all Gauge Imports Inc.'s bonds is 0.60%. The following table shows the current relationship between bond ratings and default risk premiums (DAP): Default Risk Premium Rating U.S. Treasury AAA 0.609 AA 0.80 1.05% BBB 1,45% Gauge Imports Inc. issues eight-year, AA-rated bonds. What is the yield on one of these bonds? (Hint: Disregard cross-product terms; that is, i averaging is required, use an arithmetic average.) 8.55% 4.90% 9.259 8.65% Based on your understanding of the determinants of interest rates. If everything else remains the same, which of the following will be true? The yield on a MA rated bond will be higher than the yield on a B8-rated bond. Higher inflation expectations increase the nominal interest rate demanded by investors