Treasury bills are currently paying 5 percent and the inflation rate is 2.7 percent. |
a. |
What is the approximate real rate of interest? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | 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.) |
a.approximate real rate of interest=nominal rate-inflation rate
=5-2.7
=2.3%
b. exact real rate=(1+nominal rate)/(1+inflation rate)-1
=[(1+0.05)/(1+0.027)]-1
=(1.05/1.027)-1
=2.24%(Approx).
ANSWER
a.
Approximate real rate
= Treasury rate - Inflation rate
= 5% - 2.7%
= 2.3% (ANSWER).
b.
Exact real rate
= (1 +Treasury rate) / (1 + inflation rate) - 1
= (1 + 0.05) / (1 + 0.027) - 1
= 0.0224
= 2.24% (ANSWER).
Treasury bills are currently paying 5 percent and the inflation rate is 2.7 percent. a. What...
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