what is the formula to calculate the maturity risk premium for a 2 year security? real risk-free rate is 3%, inflation is expected to be 3% for the next 2 years. the 2-year Treasury security yields 6.2%.
The general formula is r = r* + IP + MRP
r 2 = 6.2 Security Yield for 2 years
r* = 3 Risk Free Rate
IP2 = (3+3)/2 Inflation Rate
MRP2 = ? Maturity Risk Premium for 2 years
r 2= r* + IP2 + MRP26.2 = 3 + 3 + MRP2MRP2 = 0.2