Determinants of Interest Rate for Individual Securities A 2-year Treasury security currently earns 6.75 percent. Over the next two years, the real interest rate is expected to be 3.18 percent per year and the inflation premium is expected to be 2.18 percent per year. What is the maturity risk premium on the 2-year Treasury security?

An investor in Treasury securities expects inflation to be 2.2% in Year 1, 2.7% in Year 2, and 3.65% each year thereafter. Assume that the real risk-free rate is 2.45% and that this rate will remain constant. Three-year Treasury securities yield 5.50%, while 5-year Treasury securities yield 7.00%. 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.

9. Calculating interest rates The real risk-free rate (r*) is 2.8% and is expected to remain constant. Inflation is expected to be 8% per year for each of the next two years and 7% thereafter. The maturity risk premium (MRP) is determined from the formula: 0.1(t – 1)%, where t is the security’s maturity. The liquidity premium (LP) on all Gauge Imports Inc.’s bonds is 0.55%. The following table shows the current relationship between bond ratings and default risk premiums (DRP): Rating Default Risk Premium U.S. Treasury — AAA 0.60% AA 0.80% A 1.05% BBB 1.45% Gauge Imports Inc. issues 12-year, AA-rated bonds. What is the yield on one of these bonds? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 11.87% 11.32% 5.25% 12.42% Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? The yield on a AAA-rated bond will be lower than the yield on a AA-rated bond. A…

Maturity Risk Premium The real risk-free rate is 3%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 8.0%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.

5 Year Treasury Notes are currently yielding 6.00%, and you have found the following interest premium that relate to this investment: • Inflation premium 1.75% • Liquidity premium 0.00% • Default risk premium 0.00% • Maturity risk premium 1.50% Given the above information, what is the real risk-free rate of return?

Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5%, 6%, and 7%, respectively. Assume that the pure expectations theory holds and that the market is in equilibrium. Which of the following statements is most correct? Group of answer choices   The maturity risk premium is positive.   Interest rates are expected to rise over the next two years.   The market expects one-year rates to be 5.5% one year from today.   Answers a, b, and c are all correct.   Only answers b and c are correct.

The real risk-free rate is 3%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 7.6%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.

Maturity Risk Premium The real risk-free rate is 2%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 7.0%. What is the maturity risk premium for the 2-year security? Round your answer to one decimal place.   %