1. Mr. Kumar has gathered the data (as shown in Table 2 below) to find the nominal rate of interest for Security X and Security Y. Both securities are issued by different firms at the same point in time.

Table 2

Characteristics	Security X	Security Y
Inflation expectation premium	2%	3%
Risk Premium	3.5%	5%
Time to Maturity	5 years	10 years

(i) If the real rate of interest is currently 2.5%, find the risk-free rate of interest applicable to each security.

(ii) Based on your result in part (i), calculate the nominal rate of interest for each security.