Suppose the Real Risk-Free Rate Is 2

question 17

Multiple Choice

Suppose the real risk-free rate is 2.50% and the future rate of inflation is expected to be constant at 2.80%.What rate of return would you expect on a 5-year Treasury security,assuming the pure expectations theory is valid? Disregard cross-product terms,i.e. ,if averaging is required,use the arithmetic average.

• A) 5.30%
• B) 4.82%
• C) 6.25%
• D) 5.35%
• E) 6.15%

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Definitions:

Dopamine Antagonist

A type of medication that blocks dopamine receptors, often used to treat neurological and psychiatric disorders.

Dopamine Agonist

A class of medication that mimics or stimulates dopamine receptors in the brain, often used in the treatment of Parkinson's disease and restless legs syndrome.

D-2 Enhancer

A compound or substance that increases the activity of the D2 dopamine receptor, potentially affecting mood and behavior.

Viral Theory

The hypothesis that some diseases, particularly mental illnesses, are caused by viruses or other infectious agents.