Question
1. The real risk-free rate is 2.00%. Inflation is expected to be 1.50% this year and 4.25% during the next 2 years. Assume that the
1. The real risk-free rate is 2.00%. Inflation is expected to be 1.50% this year and 4.25% during the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.
2. A Treasury bond that matures in 10 years has a yield of 5.50%. A 10-year corporate bond has a yield of 8.50%. Assume that the liquidity premium on the corporate bond is 0.55%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
3. The real risk-free rate is 3.5% and inflation is expected to be 2.75% for the next 2 years. A 2-year Treasury security yields 6.65%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.
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