Computation of yield on treasury bond with given data

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Computation of yield on Treasury bond with given data

The real risk-free rate of interest is 3 percent. The market expects that inflation will be 3 percent each year for the next 5 years, and then will average 5 percent a year thereafter. The maturity risk premium is estimated to be MRP t = 0.1(t - 1)%. In other words, the maturity risk premium on a two-year security is 0.1 percent or 0.001. What is the yield on a Treasury bond which matures in twelve years?

Reference no: EM1316452

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