Imagine that today is January 1,2017. The rate of inflation is expected to be 4% throughout 2017. However, increased government deficits and renewed vigor in the economy are then expected to push inflation rates higher. Investors expect the inflation rate to be 5% in 2018, 6% in 2019, and 7% in 2020. The real risk-free rate, k* is expected to remain at 2% over the next 5 years. Assume that no maturity risk premiums are required on these bonds. From the above information you are required to: a. Compute the interest rate for a one-, two-, three-, four-, and five-year bond. b. If inflation is expected to equal 8% every year after 2020, what should be the interest (5 marks) rate for a 10- and 20-year bond? c. Plot the yield curve for the interest rates you computed in part [a] and [b]. (2 marks) d. Based on the curve (in part c), what would you do if you are the borrower? Are going to (1 mark) borrow more? Or less? Explain your