Question: The real 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 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 0.005 ( (t - 1), where t = number of years to maturity. What is the nominal interest rate on a 7 year government security? (Average the expected inflation rates to determine the inflation premium, IP.)

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