The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the
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Question:
The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the six-year Treasury rate is 6.20 percent. From discussions with your broker, you have determined that the expected inflation premium will be 2.25 percent next year, 2.50 percent in year 2, and 2.50 percent in year 3 and beyond. Further, you expect that real interest rates will be 4.4 percent annually for the foreseeable future.
Calculate the maturity risk premium on the 3-year Treasury security.
Related Book For
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair
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