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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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