The real risk-free rate is 3 percent.  Inflation is expected to be 3.5 percent this year, 5 percent next year, and 6 percent thereafter.  The maturity risk premium is estimated to be 0.11 ´ (t - 1)%, where t is the number of years to maturity.  What is the yield on a 7-year Treasury note?   a. 9.66%   b. 8.50%   c. 0.77%   d. 9.16%   e. 7.16%

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A: Excel Spreadsheet:

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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.