Determinant of Interest RatesThe real risk-free rate of interest is 3%. Inflation is expected to be 1% this year and 5% duringeach of the next 2 years. Assume that the maturity risk premium is zero.What is the yield on 2-year Treasury securities? Round your answer to two decimal places.What is the yield on 3-year Treasury securities? Round your answer to two decimal places.

Treasury Yield: It refers to the interest rate paid by the government to borrow money for various…

FIsk premium is zero. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Round your answer to two decimal places.

FIsk premium is zero. What is the yield on 2-year Treasury securities? Round your answer to two decimal places. % What is the yield on 3-year Treasury securities? Round your answer to two decimal places.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 4P: Determinant of Interest Rates The real risk-free rate of interest is 4%. Inflation is expected to be...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Determinant of Interest Rates
The real risk-free rate of interest is 3%. Inflation is expected to be 1% this year and 5% during
each of the next 2 years. Assume that the maturity risk premium is zero.
What is the yield on 2-year Treasury securities? Round your answer to two decimal places.
What is the yield on 3-year Treasury securities? Round your answer to two decimal places.

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