The Real Rate of Interest Over the Next Two Years

question 51

Multiple Choice

The real rate of interest over the next two years is expected to remain at 2% per annum.Inflation is expected to be 1.5% per annum over the next two years.At the last auction,2-year T-Notes were priced to yield 4%.What is the maturity risk premium for two year maturities? (Assume that the T-Notes have no liquidity risk.)

• A) 0.40%
• B) 0.43%
• C) 0.45%
• D) 0.47%
• E) 0.50%

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