Assume that the real risk-free rate is 2.2% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.2% and a 2-year Treasury bond yields 6.1%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 27 Do not round intermediate calculations. Round your answer to two decimal places. What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. 5.40 %

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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.