Question $2(10$ points$)$

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$5-$year Treasury bonds yield $5\mathrm{.}5\%.$ The inflation premium $($IP$)$ is $1\mathrm{.}9\%,$ and the maturity risk premium $($MRP$)$ on $5$year bonds is $0\mathrm{.}4\%.$ What is the real risk$-$free rate, $r^{**}?$

$2\mathrm{.}59\%$

$2\mathrm{.}88\%$

$3\mathrm{.}20\%$

$3\mathrm{.}52\%$