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2. Suppose the real risk-free rate is 3.60%, the future rate of inflation is expected to be constant at 4.20%, and the maturity risk
2. Suppose the real risk-free rate is 3.60%, the future rate of inflation is expected to be constant at 4.20%, and the maturity risk premium for all bonds is found with the formula MRP (t-1)x0.1%. What rate of return would you expect on a 2-year Treasury security? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average? a. 0.60% b. 3.70% c. 7.80% d. 7.90% e. 4.30%
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