Question

In: Finance

Treasury bills are currently paying 6.17 percent and the inflation rate is 4.36 percent. What is...

Treasury bills are currently paying 6.17 percent and the inflation rate is 4.36 percent. What is the real rate of interest?

Solutions

Expert Solution

approximate real rate of return = treasury bill - inflation rate

=6.17%- 4.36%

=1.81%

Exact real rate =[ (1+treasury bill )/(1+ inflation rate ) ]-1

=[ (1+0.0617)/(1+0.0436)]-1

=(1.0617/1.0436)-1

=1.0173438-1

= 0.01734 or 1.73%


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