Chapter 5 1. What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5% annually? CHAPTER 6 3. The real risk-free rate is 2.5% and inflation is expected to be 2.75% for the next 2 years. A 2- year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 4. Expectation Theory Inflation: Suppose 2-year Treasury bonds yield 4.1%, while 1-year bonds yield 3.2%. r*is 1%, and the maturity risk premium is zero. a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now? Calculate the yield using the geometric average. b. What is the expected inflation rate in Year 1? Year 2