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Question: Maturity Risk Premium

An investor in Treasury securities expects inflation to be 2.35% in Year 1, 2.85% in Year 2, and 4.5% each year thereafter. Assume that the real risk-free rate is 1.55%, and that this rate will remain constant. Three-year Treasury securities yield 6.65%, while 5-year Treasury securities yield 7.55%. 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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