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The real risk-free rate is 2.5 percent. Inflation is expected to be 2 percent this year, 2.5 percent next year, and 3 percent thereafter. The maturity risk premium is estimated to be 0.07 ´ (t - 1)%, where t is the number of years to maturity. What is the yield on a 7-year Treasury note?

a. 0.49%
b. 5.71%
c. 4.92%
d. 5.29%
e. 5.92%

 

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