The real risk-free rate, r*, is 4.5%, and it is expected to remain constant over time. Inflation is expected to be 2% per year for the next three years, after which time inflation is expected to remain at a constant rate of 3% per year. The maturity risk premium is equal to 0.1(t - 1)%, where t = the bond’s maturity. What is the yield on a 10-year Treasury bond?

The real risk-free rate, r*, is 4.5%, and it is expected to remain constant over time. Inflation is expected to be 2% per year for the next three years, after which time inflation is expected to remain at a constant rate of 3% per year. The maturity risk premium is equal to 0.1(t - 1)%, where t = the bond’s maturity. What is the yield on a 10-year Treasury bond?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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