Nominal interest rate on seven year treasury security

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The real risk-free rate is 4%. Inflation is expected to be 3% this year, 4% next year, and then 4% thereafter. The maturity risk premium is estimated to be 0.0004 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Do not round intermediate calculations. Round your answer to two decimal places.

Assume that the real risk-free rate, r*, is 2% and that inflation is expected to be 8% in Year 1, 6% in Year 2, and 4% thereafter. Assume also that all Treasury securities are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two notes; that is, what is MRP5 minus MRP2? Round your answer to two decimal places.

Reference no: EM131535684

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