Question

At​ present, the real​ risk-free rate of interest is 1.9​%, while inflation is expected to be 1.4​% for the next two years. If a​ 2-year Treasury note yields 5.7​%, what is the​ maturity-risk premium for this​ 2-year Treasury​ note? The​ maturity-risk premium for the​ 2-year Treasury note is ____.

Answer 1

The​ maturity-risk premium for the​ 2-year Treasury note is 2.4%.

Step-by-step explanation:

The real risk-free rate of interest is 1.9%.

The expected rate of inflation is 1.4%.

The yield from a 2 year Treasury note is 5.7%.

The maturity risk premium for the Treasury note is

= Yield - (Risk free rate - Expected rate of inflation)

= 5.7% - (1.9 + 1.4)%

= 5.7% - 3.3%

= 2.4%

So the correct answer is 2.4%.