Question

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 that the maturity risk premium is zero. What is the yield on 4-years treasury securities?

Answer #1

Sol:

Real risk-free rate = 2.5%

Expected inflation (I1)= 3% for the year

Expected inflation (I2) = 3.5% during the next three years

Maturity risk premium = 0

To determine yield (r) on 4-years treasury securities is as follows:

4-years yield (r) = Real risk-free rate + (I1 + I2 / 4) + Maturity risk premium

r = 2.5% + (3% + 3.5% + 3.5% + 3.5% / 4) + 0

r = 2.5% + (13.5% / 4) + 0

r = 2.5% + 3.375% = 5.875%

**Therefore yield on 4-years treasury securities is
5.875%**

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What is the yield on 2-year Treasury securities? Do not round
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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

The real risk-free rate is 3%. Inflation is expected to be
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maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
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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intermediate calculations. Round your answer to two decimal places.
%
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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intermediate calculations. Round your answer to two decimal
places.
%
What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

show all works
1. The real risk-free rate of interest is 1%. Inflation is
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What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
places.
What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal
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