You work at the central bank and have been asked to estimate appropriate nominal interest rates for
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You work at the central bank and have been asked to estimate appropriate nominal interest rates for several different Treasury bonds with different maturity dates. You have been told to employ the stable real risk-free interest of 3.5% and steady inflation rate of 2.5%. There is not any default risk or any liquidity risk—there is no liquidity-risk premium. The maturity-risk premiums, dependent upon how many years the bond has to maturity, are as follows:
Based on this information, what should the nominal rate of interest on Treasury bonds maturing in 0–1 year, 1–2 years, 2–3 years, and 3–4 years be?
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Related Book For
Foundations Of Finance
ISBN: 9781292155135
9th Global Edition
Authors: Arthur J. Keown, John D. Martin, J. William Petty
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