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Suppose the real risk-free rate is 1.50% and the future rate of inflation is expected to...

Suppose the real risk-free rate is 1.50% and the future rate of inflation is expected to be constant at 2.30%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average?

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r* = risk free rate = 1.50%, IP = inflation = 2.30%

YIELD ON 1 YEAR TREASURY SECURITY = r* + IP = 1.50% + 2.30% = 3.80%  

Answer : 3.80% (Thumbs up please)

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