Question
Assume that the real risk-free rate, r*, equals 3%, and it is expected to be constant over time. Expected inflation is expected to be 3%
Assume that the real risk-free rate, r*, equals 3%, and it is expected to be constant over time. Expected inflation is expected to be 3% in Year 1, 4% in Year 2, and 5% in Year 3. Assume that the maturity risk premium (MRP) = 0.
What is the interest rate on Treasury securities that mature in three years?
a. 8.0%
b. 6.0%
c. 6.5%
d. 7.5%
e. 7.0%
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MATLAB An Introduction With Applications
Authors: Amos Gilat
6th Edition
111938513X, 978-1119385134
