Calculate the yield using geometric average

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The real risk-free rate is 2.95%. Inflation is expected to be 2.35% this year, 4.05% next year, and 2.35% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round your intermediate calculations. Round your answer to two decimal places.

Due to a recession, expected inflation this year is only 2.75%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.75%. Assume that the expectations theory holds and the real risk-free rate (r*) is 2.5%. If the yield on 3-year Treasury bonds equals the 1-year yield plus 2.5%, what inflation rate is expected after Year 1? Round your answer to two decimal places.

Interest rates on 4-year Treasury securities are currently 5.1%, while 6-year Treasury securities yield 7.8%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.

Reference no: EM131990305

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