Problem:
The real risk-free rate is 3 percent. Inflatin is expected to be 2 percent this year and 4 percent during the next 2 years. Assume that the maturity risk premium is zero.
Reuiqred:
Question 1: What is the yield on 2-year Treasury securities?
Question 2: What is the yield on 3-year Treasury securities?
Note: Show supporting computations in good form.