What is the maturity risk premium for the two-year security

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Reference no: EM131864537

1. Maturity Risk Premiums

The real risk-free rate is 2.5%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 8.75%. What is the maturity risk premium for the 2-year security? Round your answer to two decimal places.

2. INFLATION CROSS-PRODUCT

An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free rate is 4% and inflation is expected to be 11% each of the next 4 years, what is the yield on a 4-year security with no maturity, default, or liquidity risk?

Reference no: EM131864537

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