Question: A bank which is considering a fixed rate, three year loan to a customer requires a 2% per annum real return and makes the

A bank which is considering a fixed rate, three year loan to

A bank which is considering a fixed rate, three year loan to a customer requires a 2% per annum real return and makes the following inflation rate forecasts: Year 1: 1.5% Year 2: 1.2% Year 3: 2.0% What is an appropriate three year interest rate for the loan?

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