ZuoTi.Pro
Question

eBook The real risk-free rate is 2.85%. Inflation is expected to be 3.85% this year, 4.75% next year, and 2.1% thereafter. Th
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Real Risk-free Rate = 2.85%

Inflation Premium = Average Inflation for 7 years
Inflation Premium = [3.85% + 4.75% + 5 * 2.10%] / 7
Inflation Premium = 19.10% / 7
Inflation Premium = 2.73%

Maturity Risk Premium = 0.05 * (t - 1)%, t is number of years to maturity
Maturity Risk Premium = 0.05 * (7 - 1)%
Maturity Risk Premium = 0.30%

Yield on 7-year Treasury Note = Real Risk-free Rate + Inflation Premium + Maturity Risk Premium
Yield on 7-year Treasury Note = 2.85% + 2.73% + 0.30%
Yield on 7-year Treasury Note = 5.88%

0 0
Add a comment
Know the answer?
Add Answer to:
eBook The real risk-free rate is 2.85%. Inflation is expected to be 3.85% this year, 4.75%...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • The real risk-free rate is 1.85%. Inflation is expected to be 2.85% this year, 4.35% next...

    The real risk-free rate is 1.85%. Inflation is expected to be 2.85% this year, 4.35% next year, and 2.3% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places.

  • 5. Problem 6.09 (Expected Interest Rate) eBook The real risk-free rate is 3.25%. Inflation is expected...

    5. Problem 6.09 (Expected Interest Rate) eBook The real risk-free rate is 3.25%. Inflation is expected to be 4.25% this year, 4.45% next year, and 2.3% thereafter. The maturity risk premium is estimated to be 0.05 x (t-1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round intermediate calculations. Round your answer to two decimal places.

  • EXPECTED INTEREST RATE The real risk-free rate is 2.05%. Inflation is expected to be 2.3% this...

    EXPECTED INTEREST RATE The real risk-free rate is 2.05%. Inflation is expected to be 2.3% this year, 4.55% next year, and 2.55% thereafter. The maturity risk premium is estimated to be 0.05 × (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round your intermediate calculations. Round your answer to two decimal places.

  • EXPECTED INTEREST RATE The real risk-free rate is 2.3%. Inflation is expected to be 3.2% this...

    EXPECTED INTEREST RATE The real risk-free rate is 2.3%. Inflation is expected to be 3.2% this year, 4.6% next year, and 2.45% thereafter. The maturity risk premium is estimated to be 0.05 x (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Do not round your intermediate calculations. Round your answer to two decimal places. 5.19 %

  • 6-3: The Determinants of Market Interest Rates Expected Interest Rate The real risk-free rate is 2.1%....

    6-3: The Determinants of Market Interest Rates Expected Interest Rate The real risk-free rate is 2.1%. Inflation is expected to be 2.35% this year, 4.45% next year, and then 2.75% thereafter. The maturity risk premium is estimated to be 0.05(t- 1)%, where t-number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.

  • The real risk-free rate is 4%. Inflation is expected to be 3% this year, 4% next...

    The real risk-free rate is 4%. Inflation is expected to be 3% this year, 4% next year, and then 3% thereafter. The maturity risk premium is estimated to be 0.0003 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Do not round intermediate calculations. Round your answer to two decimal places.

  • 10. Problem 6.09 Click here to read the eBook: The Determinants of Market Interest Rates EXPECTED...

    10. Problem 6.09 Click here to read the eBook: The Determinants of Market Interest Rates EXPECTED INTEREST RATE The real risk free rate is 3.3%. Inflation is expected to be 3.05% this year, 4.05% next year, and 2.1% thereafter. The maturity risk premium is estimated to be 0.05 x (t-1), wheret - number of years to maturity. What is the yield on a 7-year Treasury note? Do not round your intermediate calculations. Round your answer to two decimal places

  • The real risk-free rate is 3%. Inflation is expected to be 4% this year and 5%...

    The real risk-free rate is 3%. Inflation is expected to be 4% this year and 5% next year. The maturity risk premium is estimated to be .20(t-1)%, where t is the number of years to maturity. What is the yield on a 2-year Treasury note? Please explain steps, thank you.

  • The real risk-free rate is 4%. Inflation is expected to be 2% this year, 4% next...

    The real risk-free rate is 4%. Inflation is expected to be 2% this year, 4% next year, and then 5.5% thereafter. The maturity risk premium is estimated to be 0.0007 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Round your answer to two decimal places. %

  • The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75%...

    The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT