Respuesta :
Answer:
1.90%
Explanation:
For TIPS provide rate of real rate,
Inflation rate=return on T bond-return on TIPS-maturity risk premium and it is equal to
= 5%-2.10%-1%=1.90%.
Therefore the expected rate of inflation over the next 10 years is 1.90%
Answer:
The inflation rate over the next 10 years = 1.90%.
Explanation:
Nominal interest rate = real risk-free rate + inflation premium + default risk premium + liquidity premium +maturity risk premium.
Making Inflation premium the subject of the formula, we have:
Inflation premium = Nominal interest rate - real risk-free rate -inflation premium - default risk premium - liquidity premium - maturity risk premium.
Inflation premium = 5% - 2.10% - 0 -0 -1.0% = 1.90%.
Therefore, the inflation rate over the next 10 years = 1.90%.