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The market expects inflation to do the following: remain at 1% for the next year and then increase to 2% for the next two years.

  1. The market expects inflation to do the following: remain at 1% for the next year and then increase to 2% for the next two years.
    1. What is the inflation premium for a 1-year security?
    2. For a 3-year security?
    3. If the real risk-free rate is 4% and the maturity risk premium is 0, what is the yield on a 1-year Treasury bond?
    4. A 3-year Treasury bond?

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