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QUESTION
The real risk-free rate is 3. Inflation is expected to be 3.2% this year, 3.75% next year, and then 3% thereafter. The maturity risk premium is...
The real risk-free rate is 3.4%. Inflation is expected to be 3.2% this year, 3.75% next year, and then 3% thereafter. The maturity risk premium is estimated to be 0.05(t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Round your answer to two decimal places.
SOLUTION:Quoted Risk Free Rate = Real Risk Free Rate + InflationYield = Quoted Risk Free Rate + Maturity Risk PremiumQuoted Risk Free Rate = 3.4% + 3%Quoted Risk Free Rate 6.40% Maturity Risk...