Inflation is expected to be 3 in the year 2014 4 in the, Ask an Expert

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Inflation is expected to be 3% in the year 2014, 4% in the year 2015, and 3.5% in the year 20016.

Real interest is 3%, the liquidity premium for the borrower is 1%, and the default risk premium is 1% for 2014 and increases by 1% for every year.

Calculate the interest for a 1 year, 2 year, and 3 year loan assuming that the pure expectations theory holds.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92765457

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