The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 7% per year for each of the next four years and 6% 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 Tahoe Hydroponics's bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Tahoe Hydroponics issues seven-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. 11.82% 10.77% 5.25% 11.22% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? A BBB-rated bond has a lower default risk premium as compared to a AAA-rated bond. In theory, the yield on a bond with a longer maturity will be higher than the yield on a bond with a shorter maturity