Interest Rates

Problems

The real risk$-$free rate of interest is $2\%.$ Inflation is expected to be $3\%$ the next $2$ years and $5\%$ during the next $3$ years after that. Assume that the maturity risk premium is zero. What is the yield on $3-$year freasury securities$?$

a$.5\mathrm{.}2\%$

b$.5\mathrm{.}7\%$

c$.6\mathrm{.}0\%$

d$.6\mathrm{.}2\%$

e$.6\mathrm{.}5\%$

The real risk$-$free rate of interest is $2\%.$ Inflation is expected to be $3\%$ the next $2$ years and $5\%$ during the next $3$ years after that. Assume that the maturity risk premium is zero. What is the yield on $5-$year Treasury securities$?$

a$.5\mathrm{.}2\%$

b$.5\mathrm{.}7\%$

c$.6\mathrm{.}0\%$

d$.6\mathrm{.}2\%$

e$.6\mathrm{.}5\%$