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Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 4.00%, and a maturity risk premium of o.10% per year to
Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 4.00%, and a maturity risk premium of o.10\% per year to maturity applies i.e., MRP=0.10%(t), where t is the years to maturity. What rate of return would you expect on a i-year Treasury security, assuming the pure expectations theory is NOT valid? Include the cross-product term, i.e, if averaging is required, use the geometric average. (Round your final answer to 2 decimal places,) a. 3.22% b. 7.00% c. 4.22% d. 7.10% e. 7.22%
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