The real risk-free rate of interest is 1.2%. Inflation is expected to be 7% this year...
The real risk-free rate of interest is 1.2%. Inflation is expected to be 7% this year and 6% during the next 2 years. Assume that the maturity risk premiums is zero. What is the yield on 1-year treasury securities? Write your answer as a percent
Homework Answers
Solution :-
The yield on 1-year treasury securities = Rf + IP + MRP
Where Rf is Risk Free Rate = 1.2%
IP is inflation of 1 year = 7%
MRP is maturity risk premium = 0
Now The yield on 1-year treasury securities = 1.2% + 7% + 0 = 8.2%
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