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(a) You are planning to invest in a treasury bill. Suppose the real rate is 2.5 percent and the inflation rate is 3.75 percent. What
(a) You are planning to invest in a treasury bill. Suppose the real rate is 2.5 percent and the inflation rate is 3.75 percent. What rate would you expect to see on a Treasury bill? (b) A floating-rate bond annually pays LIBOR plus 1.25 percent in annual payments. If the annualized LIBOR rate is 2.5 percent, how much would you receive in payment. The following year, LIBOR is 0.75 percent, how much will you receive during that year.
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