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Use the following information on government debt securities: Inflation is expected to be 5% next year and a steady 7% each year thereafter. Maturity risk
- Use the following information on government debt securities:
Inflation is expected to be 5% next year and a steady 7% each year thereafter. Maturity risk premiums are zero for one year debt but will increase as the term extends beyond one year. One-year Treasury government debt interest rate is 9% and two-year debt interest rate is 11%.
- What is the real risk-free rate for one year debt?Remember you are solving for short term Treasury government debt.
- What is the MR for two year debt?
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