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The real rate of interest is 2.5%. Inflation is expected to be 3.5% in the upcoming year, 3% next year, and then 2% per year

The real rate of interest is 2.5%. Inflation is expected to be 3.5% in the upcoming year, 3% next year, and then 2% per year after year 2. The maturity risk premium is 0.2%(t - 1), where t is the years until maturity, The liquidity risk premium is 0.8% regardless of the time to maturity, and the default risk premium is 1.2% regardless of the time to maturity.

A) What is the nominal rate for a 4-year Treasury bond? B) What is the nominal rate for a 4-year corporate bond?

B) What is the nominal rate for a 4-year corporate bond?

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