The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year fo each of the next two years and 5% 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 Pellegrini Southern Inc.'s bonds is 1.05%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium US Treasury 0.60% 0.80% 1.05% 1.45% Pellegrini Southern Inc. issues 10-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 9.70% 0 5.55% O 10.75% 9.85% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of following will be true? O The yield on an AAA-rated bond will be higher than the yield on a BB-rated bond. O The yield on an AAA-rated bond will be lower than the yield on an AA-rated bond