This paper circulates around the core theme of 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. together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
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.
