An investor in treasury securities expects inflation

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The Determinants of Market Interest Rates

Maturity Risk Premium

An investor in Treasury securities expects inflation to be 2.35% in Year 1, 3.15% in Year 2, and 4.25% each year thereafter. Assume that the real risk-free rate is 1.75%, and that this rate will remain constant. Three-year Treasury securities yield 6.05%, while 5-year Treasury securities yield 7.20%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP₅ - MRP₃? Round your answer to two decimal places.

Reference no: EM13807372

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