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Assume that the real risk - free rate is expected to remain constant at 2 percent per year and that inflation is expected to be

Assume that the real risk-free rate is expected to remain constant at 2 percent per year and that inflation is expected to be 5 percent this coming year (Year 1), jump to 7 percent next year (Year 2), and decrease to 4 percent for all years after (Year 3,4,5, etc.). Assuming that the expectations theory is correct, determine the nominal annual interest rate on 5-year, riskfree securities today (Year 0).
6.800%
7.333%
6.571%
6.667%
7.000%
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