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The real risk-free rate (r**) is 2.8% and is expected to remain constant. Inflation is...

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Accounting

The real risk-free rate (r**) is 2.8% and is expected to remain constant. Inflation is expected to be 6% per year for each of the next five years and 5%
thereafter.
The maturity risk premium (MRP) is determined from the formula: 0.1(t-1)%, where t is the security's maturity. The liquidity premium (LP) on all
Smith and Carter Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP):
Smith and Carter Inc. issues twelve-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.
9.57%
10.12%
5.25%
10.67%
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