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Suppose the real risk-free rate of interest is r=3% and it is expected to remain constant over time. Inflation is expected to be 1.40% per
Suppose the real risk-free rate of interest is r=3% and it is expected to remain constant over time. Inflation is expected to be 1.40% per year for the next two years and 3.80% per year for the next three years. The maturity risk premium is 0.1(t1)%, where t is number of years to maturity, a liquidity premium is 0.25%, and the default risk premium for a corporate bond is 1.90%. The average inflation during the first 3 years is What is the yield on a 3-year Treasury bond? 5.20%5.40%7.55%3.20% What is the yield on a 3-year BBB-rated bond? 5.65%5.40%7.55%7.30% If the yield on a 5-year Treasury bond is 6.24\% and the yield on a 6-year Treasury bond is 6.70\%, the expected inflation in 6 years is (Hint: Do not round intermediate calculations.)
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