Question
Suppose the real risk-free rate of interest is r*=3% and it is expected to remain constant over time. Inflation is expected to be 1.80% per
Suppose the real risk-free rate of interest is r*=3% and it is expected to remain constant over time. Inflation is expected to be 1.80% per year for the next two years and 4.00% per year for the next three years. The maturity risk premium is 0.1(t1)% , where t is number of years to maturity, a liquidity premium is 0.35%, and the default risk premium for a corporate bond is 1.80%.
The average inflation during the first 3 years is______?
What is the yield on a 3-year Treasury bond?
What is the yield on a 3-year BBB-rated bond?
If the yield on a 5year Treasury bond is 6.52% and the yield on a 6year Treasury bond is 7.02%, the expected inflation in 6 years is______
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