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Problem:

Assume the real risk free rate is 2% and that the maturity risk premium is zero. If a one year Treasury bond yield is 5% and a 2yr Treasury bond yields 7%, what is the 1year interest rate that is expected one year from now.

Required:

Question: What inflation rate is expected during year 2?

Note: Please explain comprehensively and give step by step solution.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91175090

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