Back to Assignment Attempts: Average: 12 4. Calculating Interest rates The real risk-free rate ( 4% thereafter ) is 2.8% and is expected to remain constant. Inflation is expected to be 5% per year for each of the next three years and The maturity risk premium (HRP) is determined from the formula: 0.1 (t1)%, where t is the security's maturity. The iquidity premium (LP) on all Ukin Holdings Inc.'s bonds is .55%. The following table shows the oment relationship between bond ritings and default nsi pemum Coop Rating Default Risk Premium U.S. Treasury 0.60% 0.80% 1.05% 1.45% B88 Uukin Holdings Inc. Issues ten-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. 9.35% 10 5.05% 8.80% MacBook Air esc 0 Rating U.S. Treasury Default Risk Premium 0.60% 0.80% 1.05% 1.45% BB8 Lukin Holdings Inc. Issues ten-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. 9.35% 5.05% 8.80% 8.45% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? O The yield on a AAA-rated bond will be higher than the yield on a BB-rated bond. O A AAA-rated bond has less default risk than a BB-rated bond Grade It Now Save & Continue Continue without saving MacBook Air