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Determine what is the real risk-free rate

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Reference no: EM133012405

Problem 1: The government has 5-year Treasury bonds yielding 5.4%. The inflation premium (IP) is 2.4%, and the maturity risk premium (MRP) on 5-year T-bonds is 0.6%. There is no liquidity premium on these bonds. What is the real risk-free rate, r*?

Group of answer choices

Option 1: 2.40%

Option 2: 2.69%

Option 3: 2.51%

Option 4: 2.88%

Option 5: 2.21%

Reference no: EM133012405

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