Sprint LTE 11:18 PM * 56%- a newconnect.mheducation.com C Chapter 6 HW l Saved v

Question

Sprint LTE 11:18 PM * 56%- a newconnect.mheducation.com C Chapter 6 HW l Saved ve &ExitSubmit Check my work A 2-year Treasury security currently earns 3.16 percent. Over the next two years, the real 10 points Skiped risk-free rate is expected to be 1.75 percent per year and the inflation premium is expected to be 0.60 percent per year. Calculate the maturity risk premium on the 2- year Treasury security (Round your answer to 2 decimal places.) eBook Print References Maturitv risk nremim Mc Graw Hill Prev 4 of 5 Next>

Explanation / Answer

Rate of Return = 3.16%
Real Risk-free Rate = 1.75%
Inflation Premium = 0.60%

Rate of Return = Real Risk-free Rate + Inflation Premium + Market Risk Premium
3.16% = 1.75% + 0.60% + Market Risk Premium
Market Risk Premium = 0.81%

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