1. Solve for Return of Risk Free Asset and its average Year Risk free rate (%) Inflation (%) Return risk-free asset 2011 4.51 3.00 ??? 2012 3.11 2.20 ??? 2013 2.61 2.70 ??? 2014 2.75 1.70 ??? 2015 2.34 1.70 ??? 2016 1.78 1.50 ??? 2017 1.77 1.90 ??? 2018 2.02 1.80 ??? 2019 0.90 1.80 ??? 2020 0.02 0.90 ??? Average 2.18%   ???

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A: INTRODUCTION    ANSWERS

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.