What should be the yield to maturity on risk-free bonds

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Reference no: EM131070658

The rate of inflation for the next 12 months (Year 1) is expected to be 1.4 percent; it is expected to be 1.8 percent the following year (Year 2); and it is expected to be 2.0 percent every year after Year 2. Assume the real risk-free rate, r*, is 3 per- cent for all maturities. What should be the yield to maturity on risk-free bonds that mature in (a) one year, (b) five years, and (c) 10 years.

Reference no: EM131070658

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