Suppose today is January 2, 2019, and investors expect the annual inflation rates in 2019 through 2021

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Suppose today is January 2, 2019, and investors expect the annual inflation rates in 2019 through 2021 to be: 

Year 2019 2020 2021 One-Year Inflation Rate 2.1% 1.5 0.9

To yield a real risk-free rate, r*, equal to 2 percent, what would the average nominal rate be on a.

(a) One-year bond, 

(b) Two-year bond,

(c) Three-year bond? Assume the bonds are risk-free.

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CFIN

ISBN: 9781337407342

6th Edition

Authors: Scott Besley, Eugene Brigham

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