1. A 2-year Treasury security currently earns 1.94 percent. Over the next two years, the real risk-free rate is expected to be 1.00 percent per year and the inflation premium is expected to be 0.50 percent per year. Calculate the maturity risk premium on the 2-year Treasury security.
2. Calculate the internal rate of return for the following investment: a. Year 0 investment: $150,000 b. Year 1 cash flow: $10,000 c. Year 2 cash flow: $25,000 d. Year 3 – 5 cash flows: $30,000 e. Sale Proceeds in Year 5: $175,000.