Treasury bills are currently paying 9 percent and the inflationrate is 3.1 percent.What is...

Treasury bills are currently paying 9 percent and the inflation rate is 3.1 percent.

What is the approximate real rate of interest? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Approximate real rate

What is the exact real rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Exact real rate

Solutions

Expert Solution

a. The rate is computed as follows:

= 9% - 3.1%

= 5.9%

b. The exact real rate is computed as follows:

= [ (1 + 0.09) / (1 + 0.031) ] - 1

= 5.72% Approximately

jeff jeffy answered 2 years ago

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