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You are considering an investment in a US Treasury bond but you are not sure what rate of interest it should pay. Assume that the

You are considering an investment in a US Treasury bond but you are not sure what rate of interest it should pay. Assume that the real riskfree rate of interest is 4%; inflation is expected to be 3.5%; the maturity risk premium is 1.5%; and the default risk premium for AAArated corporate bonds is 3.5%. What rate of interest should the US Treasury bond pay?

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