Suppose the Real Risk-Free Rate Is 3

question 48

Multiple Choice

Suppose the real risk-free rate is 3.00%,the average expected future inflation rate is 6.60%,and a maturity risk premium of 0.10% per year to maturity applies,i.e. ,MRP = 0.10%(t) ,where t is the number of years to maturity.What rate of return would you expect on a 1-year Treasury security,assuming the pure expectations theory is NOT valid? Disregard cross-product terms,i.e. ,if averaging is required,use the arithmetic average.

• A) 8.83%
• B) 7.47%
• C) 9.12%
• D) 9.70%
• E) 8.54%

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Definitions:

Infant Memory

The capacity of infants to remember information and experiences, which is less developed compared to adults but shows notable retention over short periods.

Dramatic Improvements

Significant and impressive enhancements or advancements in a particular area, situation, or condition.

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Piaget's Theories

Piaget's theories propose stages of cognitive development in children, describing how they construct a mental model of the world through experiences and interactions.