Question

The real risk-free rate of interest is 3%. Inflation is expected to be 1% this year and 6% during the next 2 years. Assume that the maturity risk premium is zero.

What is the yield on 2-year Treasury securities? Round your answer to two decimal places.

What is the yield on 3-year Treasury securities? Round your answer
to two decimal places.

Answer #1

Answer a.

Inflation Premium = (1.00% + 6.00%) / 2

Inflation Premium = 3.50%

Yield on Treasury Securities = Real Risk-free Rate + Inflation
Premium + Maturity Risk Premium

Yield on Treasury Securities = 3.00% + 3.50% + 0.00%

Yield on Treasury Securities = 6.50%

Answer b.

Inflation Premium = (1.00% + 6.00% + 6.00%) / 3

Inflation Premium = 4.33%

Yield on Treasury Securities = Real Risk-free Rate + Inflation
Premium + Maturity Risk Premium

Yield on Treasury Securities = 3.00% + 4.33% + 0.00%

Yield on Treasury Securities = 7.33%

Determinant of Interest Rates
The real risk-free rate of interest is 2%. Inflation is expected
to be 2% this year and 4% during the next 2 years. Assume that the
maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Round your
answer to two decimal places.
%
What is the yield on 3-year Treasury securities? Round your
answer to two decimal places.
%

EXPECTED INTEREST RATE
The real risk-free rate is 2%. Inflation is expected to be 1.5%
this year and 3.75% 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.
%

Expected Interest Rate
The real risk-free rate is 2.25%. Inflation is expected to be
1.75% this year and 4.5% during the next 2 years. Assume that the
maturity risk premium is zero.
a. What is the yield on 2-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal places.
_______%
b. What is the yield on 3-year Treasury securities? Do not round
intermediate calculations. Round your answer to two decimal places.
_______%

The real risk-free rate is 3%. Inflation is expected to be
1.5% this year and 3.5% 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.
%

The real risk-free rate is 2%. Inflation is expected to be 2.25%
this year and 3.5% 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.
%

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.

The real risk-free rate is 3.00%. Inflation is expected to be
1.50% this year and 4.25% 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.

The real risk-free rate is 2.25%. Inflation is expected to be
1.5% this year and 3.5% 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.
%

The real risk-free rate is 2.50%. Inflation is expected to be
2.50% this year and 3.50% 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.

The real risk-free rate is 2.75%. Inflation is expected to be
1.75% this year and 4.00% 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.
%

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