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Question
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 run at 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%
Answer
This answer is hidden. It contains 30 characters.
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