Problem 4-18 Determinants of Interest Rates The real risk-free rate is 3%. Inflation is expected to be 3% this year, 5% next year, and then 4% thereafter. The maturity risk premium is estimated to be 0.0006 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Round your answer to two decimal places.

Problem 4-19 Maturity Risk Premiums Assume that the real risk-free rate, r*, is 2% and that inflation is expected to be 7% in Year 1, 5% in Year 2, and 3% thereafter. Assume also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2? Round your answer to two decimal places

Problem 4-4 Determinant of Interest Rates The real risk-free rate of interest is 2%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Round your answer to two decimal places. %

Problem 4-17 Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 9%. One bond, Bond C, pays an annual coupon of 10.5%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9% over the next 4 years, what will be the price of each of the bonds at the following time periods? Assume time 0 is today. Fill in the following table. Round your answers to the nearest cent. t Price of Bond C Price of Bond Z 0 $ $ 1 2 3 4