Interest rates and bonds

A thirty- year U. S. Treasury bond has a 4.0 percent interest rate. In contrast, a ten- year Treasury bond has an interest rate of 2.5 percent. A maturity risk premium is estimated to be 0.2 percentage points for the longer maturity bond. Investors expect inflation to average 1.5 percentage points over the next ten years.

a. Estimate the expected real rate of return on the ten- year U. S. Treasury bond.

b. If the real rate of return is expected to be the same for the thirty- year bond as for the ten- year bond, estimate the average annual inflation rate expected by investors over the life of the thirty- year bond.

Do You Need A Similar Assignment?

Place an order with us. Our skilled and experienced writers will deliver a custom paper which is not plagiarized within the deadline which you will specify.

Note; 6 Hours urgent orders deliver also available.

If you need more clarifications contact our support staff via the live chat for immediate response.

 

Type of paper Academic level Subject area
Number of pages Paper urgency Cost per page:
 Total: