. If 3-year Treasury notes yield 2 percentage points more than I-year notes, what inflation rate is expected after Year 1?
. If 3-year Treasury notes yield 2 percentage points more than I-year notes, what inflation rate is expected after Year 1?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 20P
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Because of a recession, the inflation rate expected for the coming year is only 3% .However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 3%. Assume that the real risk-free rate is r* = 2% for all maturities and that there are no maturity premiums. If 3-year Treasury notes yield 2 percentage points more than I-year notes, what inflation rate is expected after Year 1?
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