Suppose the rate of return on a 10-year T-bond is 7.50%, the expected average rate...
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Suppose the rate of return on a 10-year T-bond is 7.50%, the expected average rate of inflation over the next 10 years is 1.90%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. a. 4.61% b. 6.48% c. 5.60% d. 4.70% e. 6.60%
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