Question

Suppose the real rate is 4.5 percent and the inflation rate is 6.1 percent. What rate would you expect to see on a Treasury bill

Answer 1

Answer:

10.87%

Explanation:

real rate of return = [(1 + nominal rate of return) / (1 + inflation rate)] - 1

• real rate of return = 4.5%
• inflation rate = 6.1%

1 + 4.5% = [(1 + nominal rate of return) / (1 + 6.1%)]

1.045 x 1.061 = 1 + nominal rate of return

1.108745 = 1 + nominal rate of return

0.108745 = nominal rate of return