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    Yield on a Treasury Bond

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    The market expects that inflation will be 3% percent each year for the next 5 years and then the following years will average 5% percent a year.

    The maturity risk premium is estimated to be MRPt = 0.1(t - 1)%.

    Maturity risk premium on a two year security is 0.1 percent or 0.001.

    Real risk-free rate of interest is 3%.

    What is the yield on a Treasury bond that matures in 12 years?

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    https://brainmass.com/economics/risk-analysis/yield-treasury-bond-53684

    Solution Preview

    The market expects that inflation will be 3% percent each year for the next 5 years and then the following years will average 5% percent a year.

    The maturity risk premium is estimated to be MRPt = 0.1(t - 1)%.
    Maturity risk premium on a two year security is 0.1 ...

    Solution Summary

    The solution calculates yield on a treasury bond that matures in 12 years given inflation, maturity risk premium and real risk-free rate of interest.

    $2.19

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