Question: Question 20 (4 points) Saved Suppose the return on an ordinary 10-year Treasury bond is 7.50 percent and that on a 10-year Treasury Inflation Protected

Question 20 (4 points) Saved Suppose the return on an ordinary 10-year Treasury bond is 7.50 percent and that on a 10-year Treasury Inflation Protected Security (TIPS) is 4.20 percent. Suppose also that the maturity risk premium on all 10-year bonds is 0.9 percent and that no liquidity premium is required on any Treasury security. According to the Fisher Effect, the expected average inflation rate for the next 10 years must be (approximately): Your Answer: 3.3 % Answer units

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