Real risk free rate of interest

Reference no: EM1334301

Treasury securities that mature in 6 years currently have an interest rate of 8.5%. Inflation is expected to be 5% each of the next three years and 6% each year after the third year. The maturity risk premium is estimated to be 0.1% (t-1), where t is equal to the maturity of the bond (i.e. the maturity risk premium of a one year bond if zero). The real risk free rate is assumed to be constant over time. What is the real risk free rate of interest?

Reference no: EM1334301

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