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Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the

Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

a. 2.90%
b. 3.80%
c. 4.33%
d. 4.40%

e. 2.86%

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