MATURITY RISK PREMIUM 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 premiums (MRPs) on the two securities; that is, what is MRP 5 – MRP 3 ?
Fundamentals of Financial Manageme...
Fundamentals of Financial Manageme...
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MATURITY RISK PREMIUM 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 premiums (MRPs) on the two securities; that is, what is MRP5 – MRP3?
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