8.8 Expected interest rate The real risk free rate is 3%. Inflation is expected to be 2% this year & 4% during the next 2 yrs. Assume that the maturity risk premium is 0. What is the yield on 2yr Treasury securities? What is the yield on 3yr Treasury securities?

8.9 Expected Interest Rate

The real risk free rate is 3%. Inflation is expected to be 3% this yr, 4% next yr, and then 3.5% thereafter. The maturity risk premium is estimated to be 0.05x(t - 1)%, where t = number of yrs to maturity. What is the yield on a 7yr Treasury note?