The real risk-free rate is 1.75%. Inflation is expected to be 2.75% this year, 4.65% next...

The real risk-free rate is 1.75%. Inflation is expected to be 2.75% this year, 4.65% next year, and 2.6% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity.

What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places.

Solutions

Expert Solution

Inflation premium = (2.75% + 4.65% + (5 * 2.6%))/7 = 2.91%

Maturity risk premium = 0.05 * (7 - 1)% = 0.30%

Nominal yield = 1.75% + 0.30% + 2.91% = 4.94%

jeff jeffy answered 1 year ago

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