You Are Given the Following Data Assume That a Highly Liquid Market Does Not Exist for c

question 62

Multiple Choice

You are given the following data:
$\begin{array} {| l | c | } \hline r ^ { * } = \text { real risk-free rate } & 4 \% \\\hline \text { Constant inflation premium (IP) } & 7 \% \\\hline \text { Maturity risk premium (MRP) } & 1 \% \\\hline \text { Default risk premium for AAA bonds (DRP) } & 3 \% \\\hline \begin{array} { l } \text { Liquidity premium for long-term Treasury } \\\text { bonds (T-bonds) (LP) }\end{array} & 2 \% \\\hline\end{array}$
Assume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. Given these conditions, the rate on long-term Treasury bonds is _____.

• A)23 percent
• B)11 percent
• C)14 percent
• D)19 percent
• E)27 percent

Recognize the importance of framing effects and mental accounting in influencing decisions.

Grasp the concept of loss aversion and its implications in economic behavior.

Understand the effectiveness of precommitments in overcoming self-control problems.

Understand the physiological basis of hunger and eating behaviors.

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