The real risk-free rate is 3.25%. Inflation is expected to be 2% this year and 4.5% during the next 2 years. Assume that the 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.
yield on 2yr bond
r = real risk free rate + Inflation Premium + Market risk premium
r = 3.25 + ((2+4.5)/2) + 0
r = 6.5%
yield on 3yr bond
r = real risk free rate + Inflation Premium + Market risk premium
r =3.25 + ((2+4.5+4.5)/3) + 0
r = 6.92%
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