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twilli15
Oct 3, 2009, 03:12 PM
If real risk-free rate is 4 percent. Inflation is expected to be 2 percent this year and 5 percent during the next 2 years. Assuming that the maturity risk premium is zero.

What is the yield on 2-year v.s. 3-year Treasury securities?

ArcSine
Oct 4, 2009, 06:20 AM
Use the Fisher relationship between the real rate r, the expected inflation rate i, and the nominal rate n...

(1+r)\ =\ \frac{1+n}{1+i}

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