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(a) Assume investors expect a 2.0 percent real rate of return over the next year. If inflation is expected to be 0.5 percent, what is the expected nominal interest rate for a one-year U.S. Treasury security?

(b) A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected real rate of interest is 1.5 percent, what is the expected annual inflation rate?

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Financial Management, Finance

Category:- Financial Management
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