Assume that the real risk free rate is 4 and that the, Other Subject

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Assume that the real risk free rate is 4 and that the

Assume that the real risk free rate is 4% and that the maturity risk premium is zero. If the nominal rate of interest on one year bonds is 11% and that on comparable risk two year bonds is 13%, what is the one year interest rate that is expected for year two? What inflation rate is expected during year two? Comment on why the average interest rate during the two year period differs from the interest rate expected for year two.

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