Presume that a highly liquid market does not exist for long

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Reference no: EM1316441

You are given the following data-

k* = real risk-free rate = 4%

Constant inflation premium = 7%

Maturity risk premium = 1%

Default risk premium for AAA bonds = 3%

Liquidity premium for long-term T-bonds = 2%

Presume that a highly liquid market does not exist for long-term T-bonds, and the expected rate of inflation is a constant. Given these conditions, the nominal risk-free rate for T-bills is _____, and the rate on long-term Treasury bonds is _____

Reference no: EM1316441

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