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Because of an economic recession, the coming year's expected inflation rate is only 0.5 percent. However, the inflation rate in Year 2 and thereafter
Because of an economic recession, the coming year's expected inflation rate is only 0.5 percent. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 0.5 percent. Assume that the real risk free rate is 16% for all maturities and that the expectations theory fully explains the yield curve. If 5 year Treasury bonds yield 0.8 percentage points more than 1-year Treasury bonds, what inflation rate is expected after Year 17 Group of answer choices a 150 percent b.2.90 percent c3.10 percent d. 2.10 percent e. None of the above
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