Question: Assume that return rate on TIP = 3%. Inflation rate is expected to be 6% in year 1, 5% in year 2, and 4% thereafter.

Assume that return rate on TIP = 3%. Inflation rate is expected to be 6% in year 1, 5% in year 2, and 4% thereafter. Also assume that all T- bonds are highly liquid and free of default risk. If 2-year T-bond yields 12%, what is the maturity risk premium? Select one: a. 1.0% . b. 1.5% O c. 3.5% d. 2.5% O e. 0.5%

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