You consider investing in $5-$year B$-$rated bonds issued by COB Inc. The bonds have no

special covenants. The Wall Street Journal reports that th ield on one$-$year T$-$security is

$4\mathrm{.}025$ percent. Your broker has determined the following information about economic

activity and COB Inc. bonds:

Real risk$-$free rate $=1\mathrm{.}85\%$

Default risk premium $,=1\mathrm{.}35\%$

Liquidity risk premium $,=0\mathrm{.}35\%$

Maturity risk premium $,=0\mathrm{.}85\%$

a$.$ Calculate the inflation premium?

b$.$ Calcrlate the interest rate on COB Inc. $5-$year bonds?