Question
Suppose the inflation rate is expected to be 6% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r*,
Suppose the inflation rate is expected to be 6% next year, 5% the following year, and 3% thereafter. Assume that the real risk-free rate, r*, will remain at 1% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities.
Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.
Calculate the interest rate on 1-, 2-, 3-, 4-, 5-, and 10-Treasury securities. Round your answers to two decimal places
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