The real risk-free rate is 3.5%. Inflation is expected to be 2% this year and 3.75%...

The real risk-free rate is 3.5%. Inflation is expected to be 2% 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. %

Solutions

Expert Solution

Inflation premium is average of inflation over life of bond.

For 2Year security,

Inflation premium = (2% + 3.75%)/2 = 2.875%

Nominal yield = 3.5% + 2.875% = 6.38%

For 3Year security,

Inflation premium = (2% + 3.75% + 3.75%)/3 = 3.17%

Nominal yield = 3.5% + 3.17% = 6.67%

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The real risk-free rate is 2.50%. Inflation is expected to be 1.75% this year and 3.75%...

The real risk-free rate is 2.50%. Inflation is expected to be 1.75% 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. __________%

The real risk-free rate is 3.5% and inflation is expected to be 2.25% for the next...

The real risk-free rate is 3.5% and inflation is expected to be 2.25% for the next 2 years. A 2-year Treasury security yields 6.95%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.

The real risk-free rate of interest is 3%. Inflation is expected to be 2% this year...

The real risk-free rate of interest is 3%. Inflation is expected to be 2% this year and 3% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? (If financial calculator is used show those computations and show ALL work)

The real risk-free rate is 3%, and inflation is expected to be 2% for the next...

The real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years. A 2-year Treasury security yields 6.1%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place. %

The real risk-free rate is 2.75%. Inflation is expected to be 1.50% this year and 4.50%...

The real risk-free rate is 2.75%. Inflation is expected to be 1.50% this year and 4.50% 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 2.50% this year and 5.00%...

The real risk-free rate is 2.75%. Inflation is expected to be 2.50% this year and 5.00% 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.

The real risk-free rate is 2.00%. Inflation is expected to be 2.00% this year and 4.75%...

The real risk-free rate is 2.00%. Inflation is expected to be 2.00% this year and 4.75% 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. %

The real risk-free rate of interest is 3.1%. Inflation is expected to be 5% this year and...

The real risk-free rate of interest is 3.1%. Inflation is expected to be 5% this year and 6% during the next 2 years. Assume that the maturity risk premiums is zero. What is the yield on 1-year treasury securities? Write your answer as a percent (do not type the % character - if your answer is 8.8% write 8.8 in the answer).

The real risk-free rate of interest is 1%, inflation is expected to be 1.5% this year,...

The real risk-free rate of interest is 1%, inflation is expected to be 1.5% this year, 2% next year, and 3% per year for the next 5 years. The maturity risk premium is a function of time to maturity = 0.2* (1-t) %. The default risk premium on a corporate bond is 0.9%; and liquidity premium is 0.5%. a. What is the IP over the next 4 years? b. Find the yield on a 4-year T-bond. c. Find the yield...

A. The real risk-free rate is 2.0% and inflation is expected to be 3.25% for the...

A. The real risk-free rate is 2.0% and inflation is expected to be 3.25% for the next 2 years. A 2-year Treasury security yields 6.05%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place. % B. An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. A...

Subjects