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26 March, 12:59

The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security

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  1. 26 March, 13:26
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    0.2%

    Explanation:

    The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years; so the risk-free rate is 6%.

    The maturity risk premium is the different between return on investment and same tenor investment

    = Treasury security yields 6.2% - risk free rate 6%

    = 6.2% - 6% = 0.2%
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