The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 3% per year for each of the next two years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 1)%, where t is the security's maturity. The liquidity premium (LP) on all Rink Machine Co.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rink Machine Co. issues eight-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 7.60% 6.55% 5.35% 6.90% 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 AAA-rated bond will be higher than the yield on a BB-rated bond. A AAA-rated bond has less default risk than a BB-rated bond