Posted by **fran123** on Saturday, January 28, 2012 at 7:58pm.

12. A Treasury note with a maturity of four years carries a nominal

rate of interest of 10 percent. In contrast, an eight-year Treasury

bond has a yield of 8 percent.

a. If inflation is expected to average 7 percent over the first four

years, what is the expected real rate of interest?

b. If the inflation rate is expected to be 5 percent for the first

year, calculate the average annual rate of inflation for years

2 through 4.

c. If the maturity risk premium is expected to be zero between

the two Treasury securities, what will be the average annual

inflation rate expected over years 5 through 8?

- finance -
**tutor4142 atgmail **, Sunday, January 29, 2012 at 12:58pm
12. A Treasury note with a maturity of four years carries a nominal

rate of interest of 10 percent. In contrast, an eight-year Treasury

bond has a yield of 8 percent.

a. If inflation is expected to average 7 percent over the first four

years, what is the expected real rate of interest?

b. If the inflation rate is expected to be 5 percent for the first

year, calculate the average annual rate of inflation for years

2 through 4.

c. If the maturity risk premium is expected to be zero between

the two Treasury securities, what will be the average annual

inflation rate expected over years 5 through 8?

## Answer this Question

## Related Questions

- Finance - A Treasury note with a maturity of four years carries a nominal rate ...
- Finance - A Treasury note with a maturity of four years carries a nominal rate ...
- finance - 12. A Treasury note with a maturity of four years carries a nominal ...
- finance - A treasury note with a maturity of four years carries a nominal rate ...
- Finance - P5. A thirty U.S. Treasury bond has a 4.0 percent interest rate. In ...
- Finance - A thirty-year Treasury bond has a 4.0 percent interest rate. In ...
- Finance - Interest rate premiums A 5-year Treasury bond has a 5.2 percent yield...
- Finance - A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In ...
- finance - A thirty-year U.S. Treasury bond has a 4.0 percent interest rate. In ...
- Finance - 4.A thirty year US treasury bond has a 4.0 percent interest rate.In ...

More Related Questions