An investor in treasury securities expects inflation to be, Ask an Expert

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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 premiums (MRPs) on the two securities; that is, what is MRP₅ - MRP₃?

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Financial Management, Finance

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