Question

A 2-year Treasury security currently earns 1.79 percent. Over the next two years, the real risk-free rate is expected to be 1.35 percent per year and the inflation premium is expected to be 0.35 percent per year. Calculate the maturity risk premium on the 2-year Treasury security. **(Round your answer to 2 decimal places.)**

**Maturity risk premium ____.__%**

Step 1

Maturity risk premium can be defined as the additional benefit an investor can earn on bonds having longer maturity period.

Step 2

The formula to calculate maturity risk premium is given below:

Step 3

Substitute 1.79% for treasury bond yield, 1.35% for real risk-free ra...

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