Treasuries are assumed to have no liquidity or default risk

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Reference no: EM131047625

The real risk-free rate is 1.74%. Inflation is expected to be 3.96% this year and 2.23% next year. The maturity risk premium is estimated to be equal to 0.08%(t-1), where t equals the maturity of a bond in years. All treasuries are assumed to have no liquidity or default risk. Three-year treasuries yield 0.45% more than two-year treasury bonds. What is the expected one-year inflation rate for year 3 implied by this data? State your answer as a percent to two decimal places.

Reference no: EM131047625

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