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The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1),
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Answer #1

Yield on 10-year bond = Yield on 4-year bond + 1% + (MRP for 6 years)

We add MRP for only 6 years because the Yield on the 4-year bond already includes MRP for 4 years.

Yield on 10-year bond = 8% + 1% + (0.079 * (6 - 1))

Yield on 10-year bond = 9.395%

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