Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 2.50%, and a
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Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 2.50%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the number of years to maturity, hence the pure expectations theory is NOT valid. What rate of return would you expect on a 4-year Treasury security? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
Related Book For
Public Finance A Contemporary Application of Theory to Policy
ISBN: 978-1285173955
11th edition
Authors: David N Hyman
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