Question: Use the following information to answer the next TWO questions. * Return rate on TIP = 3%. * Inflation rate is expected to be 8%

 Use the following information to answer the next TWO questions. *

Use the following information to answer the next TWO questions. * Return rate on TIP = 3%. * Inflation rate is expected to be 8% in year 1,5% in year 2, and 4% thereafter. * All T-bonds are highly liquid and free of default risk. If a 2-year T-bond yields 11%, what is the maturity risk premium? Select one: O a. 1.5% O b. 1.0% c. 3.5% O O d. 14.5% O e. 0.5%

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