Suppose today is January 2, 2019, and investors expect the annual inflation rates in 2019 through 2021
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Suppose today is January 2, 2019, and investors expect the annual inflation rates in 2019 through 2021 to be:
To yield a real risk-free rate, r*, equal to 2 percent, what would the average nominal rate be on a.
(a) One-year bond,
(b) Two-year bond,
(c) Three-year bond? Assume the bonds are risk-free.
Transcribed Image Text:
Year 2019 2020 2021 One-Year Inflation Rate 2.1% 1.5 0.9
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a Oneyear bond The nominal rate for a oneyear bond is simply the expected inflation rate ...View the full answer
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