Problem 4-18 Determinants of Interest Rates

The real risk-free rate is 4%. Inflation is expected to be 2% this year, 3% next year, and then 5.5% thereafter. The maturity risk premium is estimated to be 0.0007 x (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7-year Treasury security? Round your answer to two decimal places.

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