1. The real risk-free rate of interest is 3%. Inflation is expected to be 3% this year and 5% during the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Round your answer to two decimal places. %
What is the yield on 3-year Treasury securities? Round your answer to two decimal places. %
2. A Treasury bond that matures in 10 years has a yield of 5%. A 10-year corporate bond has a yield of 9%. Assume that the liquidity premium on the corporate bond is 0.4%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
3. The real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years. A 2-year Treasury security yields 7.8%. What is the maturity risk premium for the 2-year security?