Question

**The real risk-free rate of interest is 3.8%. Inflation
is expected to be 2.5% this year and 4.0% during the next 2 years.
. Assume that the maturity risk premium is 0.5% for 2-year and 0.8%
for 3-year period. What is the yield on 2-year Treasury securities?
What is the yield on 3-year Treasury securities?**

Answer #1

Risk free rate now = 3.8%

Risk free rate after 2 years =Risk free rate * (1 +inflation for year 1) * (1 +inflation for year 2) =3.8% *1.025*1.04=4.0508%

Risk free rate after 3 years =Risk free rate * (1 +inflation for year 1) * (1 +inflation for year 2)* (1 +inflation for year 3)

=3.8% *(1.025) *(1.04) *(1.04)=4.2128%

Yield on 2 year securities = Risk free rate after 2 years *(1+maturity premium)

=4.0508*(1+0.005)=4.0710%

Yield on 3 year securities = Risk free rate after 3 years *(1+maturity premium)

=4.2128*(1+0.008)=4.2465%

The real risk-free rate is 2.5%, and inflation is expected to be
3% for this year. and a 3.5%. during the next three years. Assume
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The real risk-free rate is 2.5%. Inflation is expected to be
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places.
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What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
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The real risk-free rate of interest is 2%. Inflation is expected
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PLEASE SHOW WORK, EXPLANATION, AND EQUATION

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show all works
1. The real risk-free rate of interest is 1%. Inflation is
expected to be 4% the next 2 years and 7% during the next 3 years
after that. Assume that the maturity risk premium is zero. What is
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%
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intermediate calculations. Round your answer to two decimal
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%

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_______%
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PLEASE SHOW ON EXCEL
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I can do this by hand, but I am wondering the easiest way to do
it on excel. Should I use nominal function? Thanks!

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