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The rate of inflation for the next 12 months (Year 1) is expected to be 1.4 percent; it is expected to be 1.8 percent the
The rate of inflation for the next 12 months (Year 1) is expected to be 1.4 percent; it is expected to be 1.8 percent the following year (Year 2); and it is expected to be 2.0 percent every year after Year 2. Assume the real risk-free rate, , is 3 percent for all maturities. What should be the yield to maturity on risk-free bonds that mature in
(a)
one year,
(b)
five years, and
(c)
10 years.
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