Question

Suppose the real rate is 2.8 percent and the inflation rate is 4.4 percent.

  

What rate would you expect to see on a Treasury bill? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

Nominal rate would be expected on trasury bills.

Nominal rate = [{1 + Real interest rate} x {1+ Inflation rate}] - 1

= [ 1.028 x 1.044 ] - 1

= 7.32