Question:
An investor in Treasury securities expects inflation to be 2.5% in Year1,3. 2% in Year 2, and 3.6% each year thereafter. Assume that the real risk-free rate is 2.75%, and that this rate will remain constant over time. Three-year Treasury securities yield 6.25%, while 5-year Treasury securities yield 6.80%. What is the difference in the maturity risk premiums (MRPs) on the two securities; that is MRP5-MRP3?