Problem:
The real risk-free rate is 2%. Inflation is expected to be 4% this year, 3% next year, and then 3% thereafter. The maturity risk premium is estimated to be 0.0006 x (t - 1), where t = number of years to maturity.
Required:
Question: What is the nominal interest rate on a 7-year Treasury security? Round your answer to two decimal places.
Note: Please show how to work it out.