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Nominal Interest Rate

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The real risk free rate is 3 percent. Inflation is expected to be 3 percent this year, 4 percent next year and 3.5 percent thereafter. The maturity risk premium is estimated to be .0005 X (t-1) where t= the numer of years to maturity. What is the nominal interst rate on a 7 year treasury security?

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The solution calculates the Nominal Interest Rate for a 7 year Treasury Security, given inflation and maturity risk premium.

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The real risk free rate is 3 percent.  Inflation is expected to be 3 percent this year, 4 percent next year and 3.5 percent there after.  The maturity risk premium is estimated to be .0005 X (t-1) where t= the ...

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