2a) Assume that the real, risk-free interest rate (r_rf) is 3 percent and is expected to remain constant. Suppose as well that investors expect inflation will average 5 percent each year for the next ten years. Finally, the maturity risk premium is estimated by investors to be MRP = 0.25%(t 1), where t represents the number of years. This implies that the MRP on a three-year security would be 0.5% (or 0.005 in decimal form). Using the information above as necessary, what would be the nominal yield on a U.S. Treasury bond which matures in four (4) years? Similarly, what would be the nominal yield on a U.S. Treasury bond which matures in seven (7) years?

Nominal Yield on a 4-Year U.S. Treasury Bond = ____________________.

Nominal Yield on a 7-Year U.S. Treasury Bond = ____________________.

2b) Suppose a bank has actual reserves (AR) of $60,000 and excess reserves (ER) of $20,000. If this bank has deposit liabilities (D) of $250,000, what must be the required reserve ratio (rr) for the bank?

Required reserve ratio (rr) = _________________.