Posted by **Alexandriea** on Wednesday, July 22, 2009 at 10:00am.

suppose the real risk - free is 3.50% and the future rate of inflation is expected to be constant at 6.80% . What rate of return would you expect on a 1 yr Treasury security , assuming the pure expectations theory is valid? Disregard cross- product terms, i.e., if averaging is required use the arithmetic average.

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