1. A treasury bond that matures in 10 years has a yield of 5.5%. A 10-year corporate bond has a yield of 7%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond?
2. An investor in Treasury securities expects inflation to be 2.5% in Year 1, 3.2% in Year 2, and 3.8% each year thereafter. Assume that the real risk-free rate is 2.75% and that this rate will remain constant. Three-year Treasury securities yield 5.75%, while 5-year Treasury securities yield 6.50%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 − MRP3?