On January 1, you observe that the 2-year note yields 2.5% and the 3-year note rate is 3.3%. Market participants are certain that the real rate will remain unchanged at 2.9% over the next three years. What do investors believe inflation will be during the third year? Assume there is no risk premium or liquidity premium influencing these rates and ignore the interaction term in the Fisher equation.

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To calculate the expected inflation rate for the third year you can use the Fisher equ... View the full answer