Assume the real risk-free rate, r*, is 2.50%, the average expected future inflation rate is 3.10%, and a maturity risk premium of 0.15% per year to maturity applies, i.e., MRP = 0.10% times "t", where "t" is the years to maturity. What rate of return, r, would you expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid? Hint: r = r* + IP + DRP + LP + MRP.

6.2%

7.7%

5.8%

5.6%