A. The real risk-free rate is 3%, and inflation is expected to be 2.5% for the next 2 years. A 2-year Treasury security yields 8.75%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.
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B. A treasury bond that matures in 10 years has a yield of 4.75%. A 10-year corporate bond has a yield of 8.5%. Assume that the liquidity premium on the corporate bond is 0.3%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
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