Delay - A g / INFLATION Due to a recession, expected inflation this year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the expectations theory holds and the real risk-free rate (r) is 2%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2%, what inflation rate is expected after Year 1? is 2.75% and that this rate will remain constant. Three-year Treasury Securities yield 6.25%, while 5-year Treasury securities yield 6.80%. What is the difference in the maturity risk premiums (MRP) on the two securities; that is, what is MRPs - MRP,? DEFAULT RISK PREMIUM The real risk-free rate, r, is 2.5% Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a 6-13 Delay - A g / INFLATION Due to a recession, expected inflation this year is only 3%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the expectations theory holds and the real risk-free rate (r) is 2%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2%, what inflation rate is expected after Year 1? is 2.75% and that this rate will remain constant. Three-year Treasury Securities yield 6.25%, while 5-year Treasury securities yield 6.80%. What is the difference in the maturity risk premiums (MRP) on the two securities; that is, what is MRPs - MRP,? DEFAULT RISK PREMIUM The real risk-free rate, r, is 2.5% Inflation is expected to average 2.8% a year for the next 4 years, after which time inflation is expected to average 3.75% a 6-13