Question

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 interest rate on 1-, 2-, 3-, 4-, 5-, 10-, and 20-year Treasury securities. Round your answers to two decimal places. Treasury securities Interest rate 1-year % 2-year % 3-year % 4-year % 5-year % 10-year % 20-year %

Answer #1

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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...

Suppose the inflation rate is expected to be 6% next year, 5%
the following year, and 3% 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.Select the correct...

Suppose the inflation rate is expected to be 6.3% next year, 4%
the following year, and 3.5% thereafter. Assume that the real
risk-free rate, r*, will remain at 1.55% 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...

b) Suppose most investors expect the inflation rate to
be 5% next year, 6% the following year, and 8% thereafter. The real
risk-free rate is 3%. The maturity risk premium is zero for bonds
that mature in 1 year or less and 0.1% for 2-year bonds; then the
MRP increases by 0.1% per year thereafter for 20 years, after which
it is stable. What is the interest rate on 1-, 10-, and 20-year
Treasury bonds? Draw a yield curve with...

Assume that the real risk-free rate, r*, is 4 percent, and that
inflation is expected to be 10% in Year 1, 6% in Year 2, and 4%
thereafter. Assume also that all Treasury bonds are highly liquid
and free of default risk. If 2-year and 5-year Treasury bonds both
yield 12%, what is the difference in the maturity risk premiums
(MRPs) on the two bonds, i.e., what is MRP5 - MRP2?

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
the yield on 3-year Treasury securities? (5 points)
2. The real risk-free rate of interest is 2.5%. Inflation is
expected to be 2% the next 2 years and 4% during the next 3 years
after that. Assume that the...

An investor in Treasury securities expects inflation to be 2% in
Year 1, 3.2% in Year 2, and 4.4% each year thereafter. Assume that
the real risk-free rate is 2.35% and that this rate will remain
constant. Three-year Treasury securities yield 6.90%, while 5-year
Treasury securities yield 8.05%. What is the difference in the
maturity risk premiums (MRPs) on the two securities; that is, what
is MRP5 - MRP3? Do not round intermediate calculations. Round your
answer to two decimal...

An investor in Treasury securities expects inflation to be 2.4%
in Year 1, 3.1% in Year 2, and 3.75% each year thereafter. Assume
that the real risk-free rate is 1.65% and that this rate will
remain constant. Three-year Treasury securities yield 6.60%, while
5-year Treasury securities yield 8.00%. What is the difference in
the maturity risk premiums (MRPs) on the two securities; that is,
what is MRP5 - MRP3? Do not round
intermediate calculations. Round your answer to two decimal...

An investor in Treasury securities expects inflation to be 1.55%
in Year 1, 2.85% in Year 2, and 4.3% each year thereafter. Assume
that the real risk-free rate is 2.45% and that this rate will
remain constant. Three-year Treasury securities yield 6.50%, while
5-year Treasury securities yield 7.90%. What is the difference in
the maturity risk premiums (MRPs) on the two securities; that is,
what is MRP5 - MRP3? Do not round intermediate calculations. Round
your answer to two decimal...

An investor in Treasury securities expects inflation to be 2.3%
in Year 1, 2.85% in Year 2, and 4.35% each year thereafter. Assume
that the real risk-free rate is 1.6% and that this rate will remain
constant. Three-year Treasury securities yield 6.30%, while 5-year
Treasury securities yield 8.30%. What is the difference in the
maturity risk premiums (MRPs) on the two securities; that is, what
is MRP5 - MRP3? Do not round intermediate
calculations. Round your answer to two decimal...

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