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(Solved) The real risk-free rate of interest is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next year, and increase...


 

The real risk-free rate of interest is 3 percent. Inflation is expected to be 4 percent this coming year, jump to 5 percent next year, and increase to 6 percent the year after (Year 3). According to the expectations theory, what should be the interest rate on 3-year, risk-free securities today?
a. 18 %   b. 12 %   c. 6 %   d. 8 %   e. 10 %


 


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