Treasury securities that mature in 8 years currently have an interest rate of 5.5%.
Inflation is expected to be 3% each of the next three years and 5% each year after the third year. The maturity risk premium is estimated to be 0.2%(t - 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a one-year bond is zero).
The real risk-free rate is assumed to be constant over time. What is the real risk-free rate of interest?