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 four years and 2% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t - 18%, where t is the security's maturity. The liquidity premium (LP) on all Rink Machine Co.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Default Risk Premium Rating U.S. Treasury AAA 0.60% 0.80% AA A 1.05% BBB 1.45% Rink Machine Co. issues 12-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. 6.48% 5.25% 7.03% 7.58%