Real Risk-Free Rate

You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.4%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums:

Inflation premium = 2.75%

Liquidity premium = 1.1%

Maturity risk premium = 1.55%

Default risk premium = 2.3%

On the basis of these data, what is the real risk-free rate of return? Round your answer to two decimal places.

%

Expected Interest Rate

The real risk-free rate is 3%. Inflation is expected to be 2.25% this year and 4.75% 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. %