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An analyst gave us the the following information:

The Real Rate of Interest: r* = 1%

Inflation Premium (IP) is expected to be: Year one = 3%, Year two = 5%, Year three = 5% and Year four = 7%

Maturity Risk Premium (MRP) = 0.1 X (t-1)%

Liquidity Premium (LP) for a long-term security= 0.25%

Default Risk Premium (DRP) for a long term security= 1%

Question: What is the Yield on a 1-year T-Bill?





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