Problem:
The real risk-free rate is 3 percent. Inflation is expected to be 2 percent this year and 4 percent during the next 2 years. Assume the maturity risk premium is zero.
Requirement:
Question 1: What is the yield on 2-year treasury secuties?
Question 2: What is the yield on 3-year treasury securities?
Note: Please show how to work it out.