topic: maturity risk premium

kat80 · #1 Sep 10, 2007, 02:38 AM

assume that the real risk free rate, r*, is 3 percent an that inflation is expected to be 8 percent in year 1,5 percent in year 2, and 4 percent thereafter. Assume also that all treasury securities are highly liquid and free of default risk. if a 2 year and 5 year treasury notes both yield 10 percent, what is the difference in the maturity risk premium on the two notes: that is what is MRP1 minus MRP2?

Clough · Sep 10, 2007, 03:40 AM

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