Problem $5-18$

Determinants of Interest Rates

The real risk$-$free rate is $2\%.$ Inflation is expected to be $2\%$ this year, $3\%$ next year, and then $3\%$ thereafter. The maturity risk premium is estimated to be $0\mathrm{.}0003(t-1),$ where $t=$ number of years to maturity. What is the nominal interest rate on a $7-$year Treasury security? Do not round intermediate calculations. Round your answer to two decimal places.

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