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A 30-year U.S. Treasury bond has a 4.0 percent interest rate. In contrast, a 10-year Treasury note 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 10 years. Estimate the expected real rate of return on the 10-year U.S. .

Respuesta :

Answer:

expected real rate = 1%

Explanation:

Given data:

for 30 year, interest rate  = 4%

for 10 year, interest rate = 2.5%

inflation rate 1.5% for over next 10 year

0.2% for maturity risk premium

Expected real rate of return on 10 yr U.S treasury bond is calculated as

expected real rate  = rate of return - inflation rate

putting all value to get real rate of return value

expected real rate = 2.5% - 1.5%  

expected real rate = 1%

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