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Business, 22.02.2020 01:21 zariahj044

Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 3.10%, and a maturity risk premium of 0.10% per year to maturity applies, i. e., MRP = 0.10%(t), where t is the number of years to maturity, hence the pure expectations theory is NOT valid. What rate of return would you expect on a 4-year Treasury security? Disregard cross-product terms, i. e., if averaging is required, use the arithmetic average.
a. 6.60%
b. 7.70%c. 8.80%d. 9.90%

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Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 3.10%, and a...
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