Assume that the real risk-free rate is 5% and that inflation is expected to be 10% in Year 1, 8% in Year 2, and 3% in Year 3. Also assume that Treasury securities are highly liquid and free of default risk. If 2-year and 3-year Treasury notes both yield 16%, what is the difference in the maturity risk premiums (MRPs) on the two notes, i.e., MRP3 - MRP2? 2% O 5% 4% O 3%
