Question
Tegrity standards. Question 1 5 pts Assume that a 3-year Treasury security yields 5.10%. Also assume...
tegrity standards. Question 1 5 pts Assume that a 3-year Treasury security yields 5.10%. Also assume that the real risk-free ratę (r") is 0.75%, and inflation is expected to be 2.25% annually for the next 3 years. In addition to inflation, the nominal interest rate also includes a maturity risk premium (MRP) that reflects interest rate risk. What is the maturity risk premium for the 3-year security? Round your answer to two decimal places Your answer should be between 0.00 and 2.92, rounded to 2 decimal places, with no special characters.
Answers
Yield on 3-year Treasury Security = 5.10%
Real Risk-free Rate = 0.75%
Inflation Premium = 2.25%Yield on 3-year Treasury Security = Real Risk-free Rate + Inflation Premium + Maturity Risk Premium
5.10% = 0.75% + 2.25% + Maturity Risk Premium
5.10% = 3.00% + Maturity Risk Premium
Maturity Risk Premium = 2.10%So, maturity risk premium for the 3-year security is 2.10%
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