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DQuestion 1 1 pts If the real (before inflation) rate is 0.74% and expected inflation is 2.6%, what is the expected US government ( risk free) interest rate for the same period? (Use the more complicated, not the estimate). Express answer as a decimal.

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Answer #1

Calculation of expected US government rate:

Expected rate= (1+real rate) *(1+inflation rate)

Expected rate= (1+0.0074)*(1+0.026)

Expected rate= 1.03359

Expected rate is 3.36%

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