Expected interest rate: Calculate yield on 2-year Treasury securities and on 3-year Treasury securities.
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?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/finance/expected-interest-rate-calculate-yield-on-2-year-treasury-securities-and-on-3-year-treasury-securities-7eio
... years, MRP = 0.
First find the average inflation for the first 2 years.
IP2 = (2% + 4%) / 2 = 3%