Question

A two-year Treasury security currently earns 5.13 percent. Over the next two years, the real interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be 1.75 percent per year. Calculate the maturity risk premium on the two-year Treasury security.

Answer 1

maturity risk premium = 1.23 %

Step-by-step explanation:

given data

currently earns = 5.13 %

real interest rate = 2.15 %

inflation premium = 1.75 %

solution

we get here maturity risk premium that is express as

maturity risk premium = currently earning - real interest rate - inflation premium .................1

put here value and we get

maturity risk premium = 5.13 % - 2.15 % - 1.75 %

maturity risk premium = 1.23 %