Treasury securities and plot the yield curve

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Suppose the inflation rate is expected to be 7% next year, 5% the following year, and 3% thereafter. Assume the real risk rate will remain at 2% an d that maturity risk premiums on treasury securities rise from zero on very short term bonds (those that mature in a few days) to 0.2% for 1 year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5 year or longer term T-bonds. Calculate the interest rate on 1-,2-,3-,4-,5-,10-, and 20- year treasury securities and plot the yield curve.

Reference no: EM13908757

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