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he real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.5%...

he real risk-free rate is 2.25%. Inflation is expected to be 2.5% this year and 4.5% during the next 2 years. Assume that the maturity risk premium is zero.

  1. What is the yield on 3-year Treasury securities? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer #1

The yield on the 3 year treasury security is :

a. Rf + maturity risk premium + inflation premium

MRP = $0,

IP 3 = (2.5 +4.5 + 4.5)/3 = 3.83

= 2.25% + 0 + ($2.5 + 4.5+ 4.5)/3

= 6.08 % ( rounded off to two decimal places)

The yield on 3 year treasury security is 6.08%

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