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What is the difference in the maturity risk premium

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Reference no: EM13875684

An investor in treasury securities expects inflation to be 2.5% in year 1, 3.2% in year 2 and 3.6% each year thereafter. Assume that the real risk-free rate is 2.75% and that this rate will remain constant.

Three-year Treasury securities yield 6.25%, while 5-year Treasury securities yield 6.80%.

What is the difference in the maturity risk premium on the 2 securities that is, what is MRP5 - MRP3?

Reference no: EM13875684

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