Question
An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not
An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. A 6-year security with no maturity, default, or liquidity risk has a yield of 25.08%. If the real risk-free rate is 6%, what average rate of inflation is expected in this country over the next 6 years? (Hint: Refer to "The Links Between Expected Inflation and Interest Rates: A Closer Look".) Do not round intermediate calculations. Round your answer to the nearest whole number.
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