Main components of nominal long term interest rate

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(i) Write down an equation for the three main components of the nominal long term interest rate on a bond, clearly explaining what each symbol represents.

(ii) US inflation is picking up discuss the likely implications for US long term bond yields.

(iii) Draw a negatively sloped yield curve and label it curve 1. On the same diagram draw a new yield curve labelled curve 2 if the expected rate of inflation, both short and long term, rises. Label your axes carefully.

Reference no: EM133129069

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