What is the one-year interest rate that is expected for year

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Reference no: EM131012697

Assume that the real risk-free rate is 4 percent and the maturity risk premium is zero. If the nominal rate of interest on one-year bonds is 11 percent and on comparable-risk two-year bonds it is 12 percent, a) What is the one-year interest rate that is expected for Year 2? b) What inflation rate is expected during Year 2? c) Why might the average interest rate during the two-year period differ from the one-year interest rate expected for Year 2? Need explanation and steps please.

Reference no: EM131012697

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