### What does the lender expect the inflation rate

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##### Reference no: EM13909317

Marshall Manufacturing has just borrowed money at 13.5% for 2 years. The pure rate of interest is 2%. Marshall's default risk premium is 4%, its liquidity risk premium is 2%, and its maturity risk premium is .5%. Inflation is expected to be 3% during the first year of the loan's life. What does the lender expect the inflation rate to be in the loan's second year? Please show formula and answer.

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