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Suppose that economists have determined that real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year

Suppose that economists have determined that real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. In addition, Treasury bonds with terms to maturity greater than one year incur a maturity risk premium equal to 0.1 percent per year. What should the rate be on a five-year Treasury bond?

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