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Business, 28.10.2019 22:31 brionnashelp

Suppose the rate of return on a 10-year t-bond is 5.00% and that on a 10-year treasury inflation protected security (tip) is 2.10%. suppose further that the expected average rate of inflation over the next 10 years is 2.0%, that the mrp on a 10-year t-bond is 0.9%, that no mrp is required on tips, and that no liquidity premiums are required on any t-bonds. given this data, what is the real risk free rate of return, r*? disregard cross-product terms, i. e., if averaging is required, use the arithmetic average.

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