5-Year Treasury Bonds Yield 5

question 16

Multiple Choice

5-year Treasury bonds yield 5.5%.The inflation premium (IP) is 1.9%, and the maturity risk premium (MRP) on 5-year bonds is 0.4%.What is the real risk-free rate, r*?

• A) 2.59%
• B) 2.88%
• C) 3.20%
• D) 3.52%
• E) 3.87%

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Definitions:

Yields

The income return on an investment, such as the interest or dividends received, usually expressed as an annual percentage.

T-Bill

Short for Treasury Bill, a short-term government securities issued with a maturity of less than one year, considered a safe investment.

Interest Rates

They are the charges lenders impose on borrowers for the use of financial assets, restated here to highlight their critical role in finance and borrowing.

Simple Interest

Interest is calculated merely on the principal or on what part of the principal is still owed.