Problem:
The real risk-free rate is 3.5%. Inflation is expected to be 1.75% this year and 4.75% during the next 2 years. Assume that the maturity risk premium is zero.
Required:
Question 1: What is the yield on 2-year Treasury securities?
Question 2: What is the yield on 3-year Treasury securities?
Note: Explain all steps comprehensively.