What information does this graph tell you? d Based on this yield curve, if you needed to borrow money for longer than 1 year, would it make sense for you to borrow short term and renew the loan or borrow long term? Explain 62 REAL RISK-FREE RATE You read in The Wail Street Journal that 30-day T-bills are currently yielding 58%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: . Inflation premium 3.25% Liquidity premium 0.6% Maturity risk premium 1.85% Default risk premium = 2.15% On the basis of these data, what is the real risk-free rate of return? EXPECTED INTEREST RATE The real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.25% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities? 63 A Treasury bond that matures in 10 years has a yield of 5.75% Assume that tha iaidity premium on the 64 DEFAULT RISK PREMIUM bona has a vield of 875