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Determinants of Interest Rate for Individual Securities A 2-year Treasury security currently earns 5.75 percent. Over...

Determinants of Interest Rate for Individual Securities A 2-year Treasury security currently earns 5.75 percent. Over the next two years, the real interest rate is expected to be 3.06 percent per year and the inflation premium is expected to be 2.06 percent per year. What is the maturity risk premium on the 2-year Treasury security?

1.15%

1.00%

.63%

5.12%

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Answer #1

Maturity risk premium

= 5.75% - Real interest rate 3.06% - inflation premium 2.06%

= 5.75% - 3.06% - 2.06%

= 0.63%

Option C is the answer
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