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Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent chance of

Given her evaluation of current economic conditions, Ima
Nutt believes there is a 20 percent probability of recession, a 50
percent chance of continued steady growth, and a 30 percent
probability of inflationary growth. For each possibility, Ima has
developed an interest rate forecast for long-term Treasury bond
interest rates:
ECONOMIC INTEREST RATE
FORECAST FORECAST
Recession 6 percent
Constant growth 9 percent
Inflation 14 percent
a. What is the expected interest rate under Ima’s forecast
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Finance-8089456.doc

Given her evaluation of current economic conditions, Ima
Nutt believes there is a 20 percent probability of recession, a 50
percent chance of continued steady growth, and a 30 percent
probability...

Sign up to view the full answer

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