Question

Suppose the inflation rate is expected to be 6.75% next year, 4.3% the following year, and 3.65% thereafter. Assume that the real risk-free rate, r*, will remain at 2.45% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.

Calculate the interest rate on 2-year Treasury securities. Round
your answer to two decimal places.

%

Calculate the interest rate on 3-year Treasury securities. Round
your answer to two decimal places.

%

Calculate the interest rate on 4-year Treasury securities. Round
your answer to two decimal places.

%

Calculate the interest rate on 5-year Treasury securities. Round
your answer to two decimal places.

%

Calculate the interest rate on 10-year Treasury securities.
Round your answer to two decimal places.

%

Calculate the interest rate on 20-year Treasury securities.
Round your answer to two decimal places.

%

- Calculate the interest rate on 1-year Treasury securities.
Round your answer to two decimal places.

%

Answer #1

Suppose the inflation rate is expected to be 7% next year, 6%
the following year, and 4% thereafter. Assume that the real
risk-free rate, r*, will remain at 2% and that maturity risk
premiums on Treasury securities rise from zero on very short-term
bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
each year to maturity, up to a limit of 1.0% on 5-year or
longer-term T-bonds. Calculate the...

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risk-free rate, r*, will remain at 1.55% and that maturity risk
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bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
each year to maturity, up to a limit of 1.0% on 5-year or
longer-term T-bonds.
Calculate the...

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risk-free rate, r*, will remain at 2% and that maturity risk
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bonds (those that mature in a few days) to 0.2% for 1-year
securities. Furthermore, maturity risk premiums increase 0.2% for
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An investor in Treasury securities expects inflation to be 1.55%
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Assume that the real risk-free rate is 1.7% and that this rate will
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The real risk-free rate is 3.15%. Inflation is expected to be
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