Question: Suppose Baa-rated bonds currently yield 8%, while Aa-rated bonds yield 7%. Suppose that due to an increase in the expected inflation rate, the yields on

Suppose Baa-rated bonds currently yield 8%, while Aa-rated bonds yield 7%. Suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1.0%.

a.	Calculate the new confidence index?

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