a) The actual risk-free rate is 3%, and inflation is usual to be 2% for the next 2 years. A 2-year Treasury security yields 6.7%. What is the maturity risk premium for the 2-year security?
b) Renfro Rentals has issued bonds that have a 8% coupon rate, payable semi-yearly. The bonds mature in 10 years, have a face value of $1,000, and a yield to maturity of 8%. What is the price of the bonds?