eBook

Suppose the inflation rate is expected to be $7\%$ next year, $6\%$ the following year, and $4\%$ thereafter. Assume that the real risk$-$free rate, $r^{**},$ will remain at $2\%$ and that maturity risk premiums on Treasury securities rise from zero on very short$-$term bonds $($those that mature in a few days$)$ to $0\mathrm{.}2\%$ for $1-$year securities$.$ Furthermore, maturity risk premiums increase $0\mathrm{.}2\%$ for each year to maturity, up to a limit of $1\mathrm{.}0\%$ on $5-$year or longer$-$term T$-$bonds.

a$.$ Calculate the interest rate on $1-,2-,3-,4-,5-,10-,$ and $20-$year Treasury securities$.$ Round your answers to two decimal places.

$\backslash$table$[[$Treasury securities$,$Interest,rate$],[1-$year,$9\mathrm{.}20,\%$