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Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.   a. 2.90%     b. 3.80%     c. 4.33%     d. 4.40%       e. 2.86%

Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.   a. 2.90%     b. 3.80%     c. 4.33%     d. 4.40%       e. 2.86%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose the rate of return on a 10-year T-bond is 5.30%, the expected average rate of inflation over the next 10 years is 1.50%, the MRP on a 10-year T-bond is 0.90%, no MRP is required on a TIPS, and no liquidity premium is required on any Treasury security. Given this information, what should the yield be on a 10-year TIPS? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

  a. 2.90%  
  b. 3.80%  
  c. 4.33%  
  d. 4.40%  

 

  e. 2.86%
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