5-year Treasury bonds yield 5.2%. The inflation premium (IP) is 1.9%, and the maturity risk premium...

5-year Treasury bonds yield 5.2%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%. What is the real risk-free rate, r*?

Expert Solution

Yield on Treasury Bond = Real Risk Free Rate + Inflation Premium + Maturity Risk Premium

0.052 = Real Risk Free Rate + 0.019 + 0.004

Real Risk Free Rate = 2.90%

jeff jeffy answered 2 years ago

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