MATURITY RISK PREMIUM An investor in Treasury securities expects inflation to be 2 5%

in Year 1, 3 2% in Year 2, and 3 6% each year thereafter. Assume that the real risk-free rate is 2 75% and that this rate will remain constant. Three-year Treasury securities yield 6 25%, while 5-year Treasury securities yield 6 80%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 MRP3?

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