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Suppose the rate of return on a 10-year T-bond is currently 4.00% and that on a 10-year Treasury Inflation Protected Security (TIP) is 2.10%. Suppose
Suppose the rate of return on a 10-year T-bond is currently 4.00% and that on a 10-year Treasury Inflation Protected Security (TIP) is 2.10%. Suppose further that the MRP on a 10-year T-bond is 0.9%, that no MRP is required on TIPs, and that no liquidity premiums are required on any T-bonds. Given this data, what is the expected rate of inflation over the next 10 years?
A. | 1.0% | |
B. | 1.9% | |
C. | 2.0% | |
D. | 2.1% |
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