Question

the real risk rate of interest is 2.5% and inflation is expected to be 3% this year and 3.5 during the next three years assume that the maturity risk premium is Sarah what is the yield on 4 year treasury securities

Answer 1

Answer:

5.875%

Explanation:

Yield on 4 year security = real risk free rate + average inflation over 4 years

average inflation over 4 years = (3% + 3.5% +  3.5% + 3.5% ) / 4 = 3.375%

3.375% + 2.5% = 5.875%