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Problem 6-12 Maturity Risk Premium An investor in Treasury securities expects inflation to be 1.55% in Year 1, 3.35% in Year 2, and 4.05% each

Problem 6-12 Maturity Risk Premium

An investor in Treasury securities expects inflation to be 1.55% in Year 1, 3.35% in Year 2, and 4.05% each year thereafter. Assume that the real risk-free rate is 1.55% and that this rate will remain constant. Three-year Treasury securities yield 6.55%, while 5-year Treasury securities yield 8.30%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Round your answer to two decimal places.

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