Question $7(10$ points$)$

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Lighthouse Inc recently obtained a loan from Cortland bank with a term of $2$ years at a rate of $16\%$ rate. The company's liquidity risk is $3\%,$ the maturity risk is expected to be $2\%$ and the default risk is expected to be $2\mathrm{.}5\%.$ Inflation is expected to be $5\%$ in year $1$ and $3\%$ in year $2.$ What is the pure rate of interest? You must show your work.

$K=KPr+lnflation+DR+MR+LR$