Suppose the real rate is 7.5 percent and the inflation rate is 1.4 percent. What rate...

Suppose the real rate is 7.5 percent and the inflation rate is 1.4 percent. What rate would you expect to see on a Treasury bill?

Multiple Choice

10.36%
9.91%
8.10%
9.00%
7.65%

Expert Solution

Ans 9.00%

(1 + Nominal Return) =	( 1 + Real Rate) * (1 + Inflation Rate)
(1 + Nominal Return) =	( 1 + 7.5%) * ( 1 + 1.4%)
(1 + Nominal Return) =	1.09005
Nominal Return =	9.00%

jeff jeffy answered 2 years ago

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