Question
1. An investor in Treasury securities expects inflation to be 1.8% in Year 1, 3.3% in Year 2, and 3.65% each year thereafter. Assume that
1. An investor in Treasury securities expects inflation to be 1.8% in Year 1, 3.3% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rate is 1.7% and that this rate will remain constant. Three-year Treasury securities yield 6.25%, while 5-year Treasury securities yield 7.20%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places.
%
2. The real risk-free rate is 2.00%, and inflation is expected to be 2.00% for the next 2 years. A 2-year Treasury security yields 9.00%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.
%
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