Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 5.30%,...
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Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 5.30%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP=0.10%(t), where t is the years to maturity. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is NOT valid? Include the cross-product term, i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.) 7.02% 9.93% 8.56% 9.24% 6.68%
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