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%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Treasury bills are currently paying 7 percent and the inflation rate is 2.9 percent. What is...

Treasury bills are currently paying 7 percent and the inflation rate is 2.9 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 %

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%

If treasury rate is currently 4.7% and the inflation rate is 2.2%, then what is the...

If treasury rate is currently 4.7% and the inflation rate is 2.2%, then what is the exact real interest rate? Select one: a. 2.4% b. 2.5% c. 2.45%

B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.6 percent.

(Expected rate of return and risk)B. J. Gautney Enterprises is evaluating a security. One-year Treasury bills are currently paying 4.6 percent. Calculate the investment's expected return and its standard deviation. Should Gautney invest in this security?ProbabilityReturn0.05−5%0.351%0.556%0.059%

1) The risk free rate on treasury bills is 2.40%. Inflation is 1.3%. What is the...

1) The risk free rate on treasury bills is 2.40%. Inflation is 1.3%. What is the real rate of return on treasury bills? Meaning of what is the "real rate of return" ? If investor saw calculated number two from above, would he be pleased or not? 2) The nominal return on treasury bonds is 2.7%, the maturity risk premium is 0.2%. Real return can earn 0.3%. What is the inflation premium? Why is there maturity risk premium on US...

Anita, Inc. is considering the following investments. The current rate on Treasury bills is 8 percent,...

Anita, Inc. is considering the following investments. The current rate on Treasury bills is 8 percent, and the expected return for the market is 12 percent. Using the CAPM, what rates of return should Anita require for each individual security? Stock Beta H 0.72 T 1.47 P 0.81 W 1.37 The expected rate of return for security H, which has a beta of 0.72, is...?

1. Suppose the interest rate on 6-month treasury bills is 7 percent per year in the...

1. Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. Also, today’s spot exchange price of the pound is $2.00 while the 6month forward exchange price of the pound is $1.98. If the price of the 6-month forward pound were to _____, U.S. investors would be indifferent between covered U.K. investment and domestic U.S. investment under exact CD. a. rise to $1.990 b....

One-year Treasury bills currently earn 2.95 percent. You expect that one year from now, 1-year Treasury...

One-year Treasury bills currently earn 2.95 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.15 percent and that two years from now, 1-year Treasury bill rates will increase to 3.65 percent. The liquidity premium on 2-year securities is 0.05 percent and on 3-year securities is 0.15 percent. If the liquidity premium theory is correct, what should the current rate be on 3-year Treasury securities? (Do not round intermediate calculations. Round your answer to...

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?

Suppose the real rate is 3.3 percent and the inflation rate is 2.4 percent. What rate...

Suppose the real rate is 3.3 percent and the inflation rate is 2.4 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.

Subjects