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20 Mar 2019
Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yields 7%, what is the 1-year interest rate that is expected for Year 2? What inflation rate is expected during year 2? Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2.
Assume that the real risk-free rate is 2% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yields 7%, what is the 1-year interest rate that is expected for Year 2? What inflation rate is expected during year 2? Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2.
Bunny GreenfelderLv2
22 Mar 2019
