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Assume that the real risk-free rate is 4 percent, and that inflation is expected to be 9 percent in Year 1,6 percent in Year 2

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Assume that the real risk-free rate is 4 percent, and that inflation is expected to be 9 percent in Year 1,6 percent in Year 2 , and 4 percent thereafter. Also, assume that all Treasury bonds are highly liquid and free of default risk. If 2 -year and 5 year Treasury bonds both yield 12 percent, what is the difference in the maturity risk premiums (MRPs) on the two bonds, i.e., what is MRP5MRP2 ? (Round answer to one decimal place.) a. 3.1% b. 2.6% c. 1.8% d. 0.5% e. 2.1%

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