Multiple Choice
The real risk-free rate of interest is 3 percent.Inflation is expected to be 4 percent this coming year,jump to 5 percent next year,and run at 6 percent the year after (Year 3) .According to the expectations theory,what should be the interest rate on 3-year,risk-free securities today?
A) 18%
B) 12%
C) 6%
D) 8%
E) 10%
Correct Answer:
Verified
Correct Answer:
Verified
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