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Suppose the real risk-free rate is 3.2%, the average future inflation rate is 1.5%, and a maturity premium of 0.1% per year to maturity applies,

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Suppose the real risk-free rate is 3.2%, the average future inflation rate is 1.5%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP 0.1%(t), where t is the years to maturity. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is NOT valid? 4.7% 5.2% 5.7% 4.2% Question 2 1 pts Suppose the real risk-free rate is 4%, the average future inflation rate is 5%, a maturity premium of 0.05% per year to maturity applies, i.e., MRP- 0.05%(t), wheret is the years to maturity. Suppose also that a liquidity premium of 0.6% and a default risk premium of 0.7% applies to A-rated corporate bonds. How much higher would the rate of return be on a 8-year A-rated corporate bond than on a 5-year Treasury bond. Here we assume that the pure expectations theory is NOT valid. 1.85% 1.65% 1,05% 1.25% 1.45%

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