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Economics

The Determinants of Market Interest Rates

Problem 6-16

Inflation Cross-Product

An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross product between the real rate and inflation. A 6-year security with no maturity, default, or liquidity risk has a yield of 20.8%. If the real risk-free rate is 5.75%, what average rate of inflation is expected in this country over the next 6 years? Round your answer to two decimal places. (Hint: Refer to "The Links between Expected Inflation and Interest Rates: A Closer Look.") %

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91370969

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