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Unformatted text preview: next year? k = k pr + INFL + DR + LR k=3% + 9% + 2% + 1%= 15% 12. INFL5% yrone, and 7% each yr after. MR 0% for yrone but will increase for longer debt. Gov. debt9% yrone, 11% yrtwo a. What is the real riskfree rate and the maturity risk premium for twoyear debt? k1=k PR + I1 + MR 9% = k PR +5% +0% k PR = 4% k2= k PR + (I 1 +I 2 )/2 + MR 2 11%= 4% + 6% + MR 2 MR 2 = 1% b. Forecast the normal yield on one and twoyear government debt issued at the beginning of the second year. K 1 = k PR + I 1 =4% +7% =11% K 2 = k PR + (I 1 +I 2 )/2 + MR 2 =4% + 7% + 1%= 12%...
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This note was uploaded on 11/08/2010 for the course AGEC 424 taught by Professor Staff during the Spring '08 term at Purdue UniversityWest Lafayette.
 Spring '08
 Staff

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