1. Assume that the real risk-free rate r* is 2% and that inflation is expected

1. Assume that the real risk-free rate r* is 2% and that inflation is expected to be 7% in Year 1 6% in Year 2 and 4% thereafter. Assume
also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10% what is the difference in the
maturity risk premiums (MRPs) on the two notes; that is what is MRP5 minus MRP2? Round your answer to two decimal places.

2. Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity a $1000 par value a 10% coupon
rate and semiannual interest payments.