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Assume you are at the beginning of 2001. The real risk-free rate of interest is 3 percent and expected to remain constant. Inflation is expected to be 2 percent, 3 percent, 4 percent, and 5 percent in years 2001, 2002, 2003, and 2004, respectively. The default premium is 1 percent. The maturity risk premium on four year bonds is 0.50%. What is the nominal interest rate on a four-year U.S. government bond?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91559493

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