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Treasury securities that mature in 8 years currently have an interest rate of 5.0 percent. The maturity risk premium is estimated to be 0.1%(t -
Treasury securities that mature in 8 years currently have an interest rate of 5.0 percent. The maturity risk premium is estimated to be 0.1%(t - 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a 1-year bond is zero). The real risk-free rate is assumed to be constant over time at 2%. For AAA rated 8-year bonds, DRP and LP combine to equal 2.5%. What is the expected rate of inflation (IP) over the next eight years?
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