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Determining the nominal rate of interest

Assume that the real risk-free rate is 2 percent and that the maturity risk premium is zero. If the nominal rate of interest on 1-year bonds is 5 percent and that on comparable risk 2-year bonds is 7 percent, what is the 1-year interest rate that is expected for year two?

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Finance Basics: Determining the nominal rate of interest

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determining the nominal rate of interest

Reference No:- TGS0676081

Have a Question? (oR Write a Review)

Recent Questions Asked Finance Basics

Q : What is the geometric average return for given period

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Solution Preview :

Prepared by a verified Expert

Finance Basics: Determining the nominal rate of interest

Reference No:- TGS0676081

Recent Questions Asked Finance Basics

Q : What is the geometric average return for given period

Q : Estimate the company interest expense

Q : Real risk-free rate of return

Q : How would you argue that the pricing is done

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