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The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is
- The real risk-free rate is 2%. Inflation is expected to be 3% this year, 4% next year, and 3.5% thereafter. The maturity risk premium is estimated to be 0.00005 x (t -1), where t= number of years to maturity. What is the nominal interest rate on a 7-year government security? (Hint: Average the expected inflation rates to determine the inflation premium, IP.)
Please solve without excel
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