# Question: Assume that the interest rate on a one year Treasury bill

Assume that the interest rate on a one-year Treasury bill is 6 percent and the rate on a two-year Treasury note is 7 percent.

a. If the expected real rate of interest is 3 percent, determine the inflation premium on the Treasury bill.

b. If the maturity risk premium is expected to be zero, determine the inflation premium on the Treasury note.

c. What is the expected inflation premium for the second year?

a. If the expected real rate of interest is 3 percent, determine the inflation premium on the Treasury bill.

b. If the maturity risk premium is expected to be zero, determine the inflation premium on the Treasury note.

c. What is the expected inflation premium for the second year?

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