It is now January 1, 2023. Inflation was about 4 percent, throughout 2022. The government took action to maintain inflation at this level. However, the economy is in a recovery, and reports indicate…

It is now January 1, 2023. Inflation was about 4 percent, throughout 2022. The government took action to maintain inflation at this level. However, the economy is in a recovery, and reports indicate that inflation is expected to increase during the next 4 years. Assume that 5 percent will be the expected inflation rate for 2023, 6 percent for 2079, 6.5 percent for 2025, and thereafter inflation rate will stable at 7 percent. a. What is the average expected inflation rate over the next 4 years period 2023-2026? b. What average nominal interest rate, over the 4 years period 2023-2026, would be expected to produce 2.5 percent real risk-free rate of return on 4-year Treasury securities? c. Assume a risk-free rate of 2.5 percent and a maturity risk premium which starts at 0.04 percent on 1-year security and increases by 0.04 percent each year. Estimate the interest rate in January 2023 on the Treasury securities that mature in 1,2,5, 10 and 20 years? d. Assume that default risk premium associated with a 5-year corporate security is 1.9 percent. What is the yield on 5-year corporate securities? e. Describe the general economic condition that could be expected to produce an upward sloping yield curve.