Intro

The real short-term risk-free rate is 1.5% and expected to stay constant. The inflation rate is expected to be 0.7% this year, 2% for each of the following 5 years, and 2.5% thereafter. The maturity risk premium is expected to be 0.0004 * T, where T is the number of years to maturity.

Part 1

What is the expected yield on a 1-year Treasury bill?

Part 2

What is the expected yield on a 3-year Treasury note?