What is the difference in maturity risk premiums on security

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Reference no: EM131956768

An investor in Treasury securities expects inflation to be 2.1% in year 1, 2.7% in year 2 and 3.65% each year afterwards.

Assume that the real risk free rate is 1.95% and that this rate will remain constant. Three year Treasury securities yield 5.2%, while 5-year Treasury securities yield 6%.

What is the difference in the maturity risk premiums on the two securities (MRP₅-MRP₃)?

Reference no: EM131956768

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