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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

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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 three years and 5% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t1)%, where t is the security's maturity. The liquidity premium (LP) on all Lukin Holdings Inc.'s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Liukin Holdings inc. issues seven-year, AA-roted bonds, What is the vield on one of these bonds? Distegard cross-product terms; that is, if averaginc is required, use the arithmetic average. 10.18% 9.58% Wukin Holdings inc; issues seven-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averagi is required, use the arithmetic average. 10.18% 9.58% 9.63% 4.75% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on an AM-rated bond will be higher than the vield on a BB-rated bond. Higher inflation expectations increase the nominal interest rate demanded by investors

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