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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.

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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 6-year security with no maturity, default, or liquidity risk has a yield of 17.70%. If the real risk-free rate is 7%, what average rate of inflation is expected in this country over the next 6 years? (Hint: Refer to "The Links Between Expected Inflation and Interest Rates: A Closer Look".) Do not round intermediate calculations. Round your answer to the nearest whole number.

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jeff jeffy answered 2 years ago
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