Suppose the real rate is 3.7 percent and the inflation rate is 5.3 percent. What rate...

Suppose the real rate is 3.7 percent and the inflation rate is 5.3 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.)

Expert Solution

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

(1 + Nominal rate of return) = (1 + 0.037)(1 + 0.053)

Nominal rate of return = [(1 + 0.037)(1 + 0.053)] - 1

Nominal rate of return = 0.0920 or 9.20%

jeff jeffy answered 2 years ago

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