# Question: A Treasury note with a maturity of four years carries

A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an 8-year Treasury bond has a yield of 8 percent.

a. If inflation is expected to average 7 percent over the first four years, what is the expected real rate of interest?

b. If the inflation rate is expected to be 5 percent for the first year, calculate the average annual rate of inflation for years two through four.

c. If the maturity risk premium is expected to be zero between the two Treasury securities, what will be the average annual inflation rate expected over years five through eight?

a. If inflation is expected to average 7 percent over the first four years, what is the expected real rate of interest?

b. If the inflation rate is expected to be 5 percent for the first year, calculate the average annual rate of inflation for years two through four.

c. If the maturity risk premium is expected to be zero between the two Treasury securities, what will be the average annual inflation rate expected over years five through eight?

**View Solution:**## Answer to relevant Questions

The interest rate on a ten-year Treasury bond is 9.25 percent. A comparable maturity Aaa-rated corporate bond is yielding 10 percent. Another comparable maturity but lower quality corporate bond has a yield of 14 percent ...Describe the process of compounding and the meaning of compound interest. Describe compounding or discounting that is done more often than annually. Determine the future values (FVs) if $5,000 is invested in each of the following situations: a. 5 percent for ten years b. 7 percent for seven years c. 9 percent for four years You are considering borrowing $150,000 to purchase a new home. a. Calculate the monthly payment needed to amortize an 8 percent fixed-rate 30-year mortgage loan. b. Calculate the monthly amortization payment if the ...Post your question