5-year Treasury bonds yield 4.4%.The inflation premium (IP) is 1.9%,and the maturity risk premium (MRP) on 5-year T-bonds is 0.4%.There is no liquidity premium on these bonds.What is the real risk-free rate,r*?
A) 2.10%
B) 2.39%
C) 2.21%
D) 2.58%
E) 1.91%
Correct Answer:
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