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?
An investor in treasury securities expects inflation to be 2.5% in year 1, 3.2% in year 2 and 3.6% each year
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?
