Question

he real risk-free rate is 2.50%. Inflation is expected to be 2.00% this year and 4.00% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities

Answer 1

The yield on 2-year Treasury securities is 5%

Step-by-step explanation:

The computation of the yield on 2 year treasury securities is shown below:

The yield on the 2 -year treasury security is :

= Risk free rate of return + inflation premium + maturity risk premium

= 2% + (2% + 4%) ÷ 2 + 0 %

= 2% + 3% + 0

= 5%

Hence, the yield on 2-year Treasury securities is 5%

And, the same is to be considered

We simply applied the above formula