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Suppose the inflation rate is expected to be 3% next year, 4% the following year, and 5% thereafter. Assume that the real risk-free rate, r*,

Suppose the inflation rate is expected to be 3% next year, 4% the following year, and 5% thereafter. Assume that the real risk-free rate, r*, will remain constant at 1% and that MRP = (0.25*t)%, where t is the number of years to maturity.

Calculate the interest rate on a 5-year Treasury security.

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