Now its time for you to practice what youve learned.

Suppose the real risk-free rate of interest is r*=5%r*=5% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next 3 years and 3.60% per year for the next 5 years. The maturity risk premium is 0.1(t1)%0.1t1%, where tt is number of years to maturity, a liquidity premium is 0.35%, and the default risk premium for a corporate bond is 1.30%.

Complete the following table by calculating yields on Treasury and corporate bonds of various maturity.

	Value
The yield on a 4-year Treasury bond
The yield on a 4-year corporate bond
The yield on a 8-year Treasury bond
The yield on a 8-year corporate bond
Expected inflation in 9 years, if the yield on a 9-year Treasury bond is 8.86%