Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 3.10%,...
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Suppose the real risk-free rate is 4.20%, the average expected future inflation rate is 3.10%, and a maturity risk premium of 0.10% per year to maturity applies, i.e., MRP-O.10%(t), where t is the years to maturity, hence the pure expectations theory is NOT valid. What rate of return would you expect on a 7-year Treasury security? 7.70% 790% 8.00% 8.10%
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