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    Yield on treasury securities

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    The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities? Please show all work.

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    Solution Preview

    The yield on treasury securities is calculated as
    Yield = Real risk free rate+ Inflation premium + maturity risk premium
    We are ...

    Solution Summary

    The solution explains how to determine the yield on treasury securities