PARTE Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8% thereafter. The real risk-free rate is 3%. The maturity risk premium is zero for bonds that mature in 1 year or less and 0.1% for 2-year bonds; then the MRP increases by 0.1% per year thereafter for 20 years, after which it is stable. What is the interest rate on 1-, 10-, and 20-year Treasury bonds? Draw a yield curve with these data. What factors can explain why this constructed yield curve is upward sloping? INPUT DATA Real risk-free rate 3% Expected inflation of Expected inflation of Expected Inflation of 5% 6% 8% for the next year. for the following year. thereafter. MRP of 0.10% for each year after 1 IP * Maturity (In years) - 1-year Treasury yield- 1-year Treasury yield = 1 year Treasury yield : + + + + MRP, 10 Maturity (In years) = 10-year Treasury yleld 10-year Treasury yield 10-year Treasury yield IP 16 : + + + + MRP6 20 Maturity (in yoars) = 20year Treasury yield 20-year Treasury yleld 20.year Treasury yield IP.. MRP