Given the Following Data,find the Expected Rate of Inflation During

question 48

Multiple Choice

Given the following data,find the expected rate of inflation during the next year. r* = real risk-free rate = 3%.
Maturity risk premium on 10-year T-bonds = 2%.It is zero on 1-year bonds,and a linear relationship exists.
Default risk premium on 10-year,A-rated bonds = 1.5%.
Liquidity premium = 0%.
Going interest rate on 1-year T-bonds = 8.5%.

• A) 3.5%
• B) 4.5%
• C) 5.5%
• D) 6.5%
• E) 7.5%

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