Question: 4. Problem 6-18 (c): Suppose the inflation rate is expected to be 6.75% next year, 4.3% the following year, and 2.3% thereafter. Assume that the

4. Problem 6-18 (c): Suppose the inflation rate is expected to be 6.75% next year, 4.3% the following year, and 2.3% thereafter. Assume that the real risk-free rate, r*, will remain at 1.85% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds. Calculate the interest rate on 3-year Treasury securities.

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