The real risk-free rate of interest is 1.57% at the beginning of 2021.  Inflation is expected to be 2% in 2021, jump to 4.00% in 2022, and run at 3% in 2023.  A maturity risk premium is expected to be 0.37% per year to maturity. A liquidity premium on corporate bonds issued by small companies will continue to be 0.50%, regardless of their maturities.   What should the interest rate on a 3-year Treasury security be at the beginning of 2021?  Group of answer choices 5.85% 5.31% 5.54% 6.18% 5.68%

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A: Given: Year One-Year Rate (rRF) 2026 4.5% 2027 1.9%

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A: in this we have to calculate average inflation.

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Q: Determinants of Interest Rates Suppose you and most other investors expect the inflation rate to be…

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Q: Treasury securities that mature in 6 years currently have an interest rate of 7.75 percent.…

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Q: The real risk-free rate of interest is 4 percent. Inflation is expected to be 2 percent this coming…

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Q: In the present value of bonds, why is the number of payments 20 and not 15? If the case study is…

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Q: Suppose that the interest rate on a one-year Treasury bill is currently 1% and that investors expect…

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A: Computation of the yield:Hence, the yield is 8.58%.

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