Use the geometric average

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Reference no: EM13282208

Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 4.10%, 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. Answer 7.98% 5.93% 7.32% 5.64% 7.10%

Reference no: EM13282208

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