Managerial Finance
posted by SLW .
Due to a recession, expected inflation this year is only 2%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2%. Assume that expectations theory holds and the real riskfree rate is r* = 2.25%. If the yield on 3year Treasury bonds equals the 1year yield plus 2.75%, what inflation rate is expected after Year 1? Round your answer to two decimal places.
Respond to this Question
Similar Questions

Managerial Finance
The real riskfree rate is 2.1%. Inflation is expected to be 2.2% this year, 3.95% next year, and then 3.05% thereafter. The maturity risk premium is estimated to be 0.05(t  1)%, where t = number of years to maturity. What is the … 
Math/Finance
Due to a recession, expected inflation this year is only 2%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2%. Assume that expectations theory holds and the real riskfree rate … 
finance
Assume investors expect a 2.0% real rate of return over the next year. If inflation is expected to be 5.0%, what is the expected nominal rate dor one year US Treasury security? 
finance
A treasury note with a maturity of four years carries a nominal rate of interest of 10%. In contrast, an eight year treasury bond has a yeild of 8%. A. If inflation is expected to average 7% over the first four years,what is the expected … 
finance
12. A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eightyear Treasury bond has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first … 
finance
1. Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a oneyear U.S. Treasury security? 
finance
12. A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eightyear Treasury bond has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first … 
Finance
A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eightyear Treasury bond has a yield of 8 percent. A. If inflation is expected to average 7 percent over the first four … 
finance
Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a oneyear U.S. Treasury security? 
Finance
Due to a recession, expected inflation this year is only 2.75%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 2.75%. Assume that expectations theory holds and the real riskfree …