5-year Treasury bonds yield 6.4%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP)

Question:

5-year Treasury bonds yield 6.4%. The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%. There is no liquidity premium on these bonds. What is the real risk-free rate, r*?

a. 3.90%

b. 3.77%

c. 5.04%

d. 5.13%

e. 4.10%

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...