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Please Explain the answers and show supoporting calculations Assume that the real interest rate is 2%, and the expected inflation rate is 5%. A. What
Please Explain the answers and show supoporting calculations
Assume that the real interest rate is 2%, and the expected inflation rate is 5%. A. What is the nominal interest rate (before default & maturity premiums) that will be built into every loan contract? B. Assume that the actual, future, inflation rate turns out to be 4%. Which party (lender or borrower) will benefit, and which party will lose? Why? The one-year nominal interest rate is currently 5%. Assume that the one-year interest rate is expected to be 4% one year from now, and 3% two years from now. Using only the pure expectations theory, what are the EXACT (3 decimal places) annual interest rates on two-year and three-year securities? What shape is the yield curve? Identify one economic reason why the yield curve could have this shape
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