Maturity risk premiuman investor in treasury securities, Ask an Expert

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MATURITY RISK PREMIUM

An investor in Treasury securities expects inflation to be 2% in Year 1, 3.15% in Year 2, and 4.25% each year thereafter. Assume that the real risk-free rate is 1.6% and that this rate will remain constant. Three-year Treasury securities yield 6.20%, while 5-year Treasury securities yield 7.80%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is, what is MRP5 - MRP3? Do not round intermediate calculations. Round your answer to two decimal places.

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Financial Management, Finance

Category:- Financial Management
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