Suppose the real rate is 9.5 percent and the inflation rate is 2.6 percent. What rate...

Suppose the real rate is 9.5 percent and the inflation rate is 2.6 percent. What rate would you expect to see on a Treasury bill?

Expert Solution

(1 + Nominal rate of return) = (1 + Real rate of return)(1 + Inflation rate)

(1 + Nominal rate of return) = (1 + 0.095)(1 + 0.026)

Nominal rate of return = [(1 + 0.095)(1 + 0.026)] - 1

Nominal rate of return = 0.1235 or 12.35%

jeff jeffy answered 2 years ago

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