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Assume that r* = 1.0%; the maturity risk premium is found as MRP = 0.2%(t − 1) where t = years to maturity;

the default risk premium for AT&T bonds is found as DRP = 0.07%(t − 1); the liquidity premium is 0.50% for AT&T bonds but zero for Treasury bonds; and inflation is expected to be 7%, 6%, and 5% during the next three years and then 4% thereafter. What is the difference in interest rates between 10-year AT&T bonds and 10-year Treasury bonds?

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