Ch - Iowa State University

1. The real risk-free rate is 3 percent. Inflation is expected to be 3 percent this year, 4 percent next year, and then 3.5 percent thereafter. The maturity risk premium is estimated to be 0.05 X (t-1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? r = r* + IP + MRP + DRP + LP. r* = 0.03. ................
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