1. You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $550,000 per year. Thus, in one year, you receive $1.55 million. In two years you get $2.10 million, and so on. If the appropriate interest rate is 6.5 percent, what is the present value of your winnings?
2. The real risk-free rate is 2%, and inflation is expected to be 3.5% for the next 2 years. A 2-year Treasury security yields 8.25%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.