The real risk-free rate (r*) is 3%. Inflation, over the next 5 years, is expected to average 3%. The Default Risk Premium for AAA rate borrowers is 1%. The Liquidity Premium for AAA borrowers is 1%. The Maturity Risk Premium for 5-year bonds is 2%. Big Company, a AAA rated company, intends to issue bonds with a 5 year maturity. At what rate of interest should Big Company expect to issue its bonds?

Group of answer choices

a. 6%

b. 7%

c. 8%

d. 9%

e. 10%