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The real risk-free rate (r) is 2.8% and is expected to remain constant. Infiation is expected to be 7% per year for each of the

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The real risk-free rate (r) is 2.8% and is expected to remain constant. Infiation is expected to be 7% per year for each of the next three years and 6% thereafter, The maturity risk premium (MRP) is determined from the formula: 0.1(t1)%, where t is the security's maturity. The liquidity premium (LP) on all Smith and Carter Incis bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (Drp): 5mith and Carter inc. issues 7-year, AA-rated bonds. What is the yleld on one of these bonds? Disregard cross-product terms; that is, if aworaging is required, use the anthmetic average. 10.6395 11.18% 10.5846 4.75% Smith and Carter Inc, Issues 7wear, Af-rated bonds. What is the yieid on one of these bonds? Disregard cross-product terms; that is, if averaging is fenuired, use the arithmetic average. 10.6390 11.189 10.58% 4,75% Essed on your understanding of the determinants of interest rates, if everything eise remains the same, which of the following will be true? The yeid on an AAA-rated bond will be lower than the yield on an AA-rated bond. The yeid on U.S. Treasury securities always remalns static

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