06 1) inflation and interest rates /9

Suppose the real risk-free rate of interest is r=4% and it is expected to remain constant over time. Inflation is expected to be 1.60% per year for the next two years and 3.80% per year for the next three years. The maturity risk premium is 0.1(t1)%, where t is number of years to maturity, a liquidity premium is 0.35%, and the default risk premium for a corporate bond is 1.40%. The average inflation during the first 3 years is What is the yield on a 3-year Treasury bond? 8.28% 4.20% 6.33% 6.53% What is the yieid on a 3-year BB8-rated bond? 8.28% 6.88% 7.93% 6.53% If the yield on a 5 -year Treasury borid is 7.32% and the yield on a 6 -year Treasury bond is 7,75%, the expected inflation in 6 years is (Hint: Do not round intermediate calculations.)