Problem 5-18 Determinants of Interest Rates

The real risk-free rate is 4%. Inflation is expected to be 4% this year, 3% next year, and then 5% thereafter. The maturity risk premium is estimated to be 0.0004 x (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.