Question

The real risk free rate is 5 percent. Assume that there is no maturity risk premium on bonds
with 5 years or less to maturity. The rates of inflation each year from year 1 to 4 are:
Years 1 2 3 4
Rate of Inflation 7% 9% 12% 13%
Required:
a. Average expected inflation premium over the next 4 years.
b. Interest rate on 4 year Treasury bonds.

Answer 1

Explanation:

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