Inflation is expected to be 2.90% this year, 4.45% next year, and 2.00% thereafter. The maturity...

Inflation is expected to be 2.90% this year, 4.45% next year, and 2.00% thereafter. The maturity risk premium is estimated to be 0.08 x (t - 1)%, where t = number of years to maturity. What is the yield on a 7-year Treasury note? Assume a real risk-free rate of 2.40%.

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jeff jeffy answered 1 year ago

The real risk-free rate is 2.55%. Inflation is expected to be 3.55% this year, 4.45% next...

The real risk-free rate is 2.55%. Inflation is expected to be 3.55% this year, 4.45% next year, and 2.6% 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? Do not round intermediate calculations. Round your answer to two decimal places. %

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Assume that the real risk-free rate, r*, is 2% and that inflation is expected to be 7% in Year 1, 6% in Year 2, and 3% thereafter.

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