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uspupr.edu/webapps/blackboard/execute/displayLearning Unit course ide_23444 18content id=971879 18 framesetWrapped true Inflation and Interest rates; no MRP; 1-year 5.25% 5.50% Suppose the real risk-free rate is 3.50%

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uspupr.edu/webapps/blackboard/execute/displayLearning Unit course ide_23444 18content id=971879 18 framesetWrapped true Inflation and Interest rates; no MRP; 1-year 5.25% 5.50% Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 2.25%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross- product terms, i.e., if averaging is required, use the arithmetic average. 5.75% 6.00% 6.25% SUE apr.edu/webapps/blackboard/execute/display.earning Unit?course_id=_23444_1&content_id=9718791&framesetWrappe Inflation and interest rates; MRP exists 5.95% 6.05% Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.25%, and a maturity premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(+). 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? Disregard cross- product terms, l.e., if averaging is required, use the arithmetic average. 6.15% 6.25% 6.35%

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