Question: : a . Suppose Baa - rated bonds currently yield 7 . 5 % , while Aa - rated bonds yield 5 . 5 %

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a. Suppose Baa-rated bonds currently yield 7.5%, while Aa-rated bonds yield 5.5%. Now suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1.5%. What would happen to the confidence index? (Round your answers to 4 decimal places.)

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