(Real interest rates: approximation method) If the real risk-free rate of interest is 4.4 %4.4% and...
(Real interest rates: approximation method) If the real
risk-free rate of interest is 4.4 %4.4% and the rate of inflation
is expected to be constant at a level of 3.4 %3.4%, what would you
expect 1-year Treasury bills to return if you ignore the cross
product between the real rate of interest and the inflation
rate?
The expected rate of return on 1-year Treasury bills is nothing%.
(Round to one decimal place.)
Homework Answers
CALCULATION OF EXPECTED RATE OF RETURN
Current real risk-free rate = 0.044
Expected inflation rate = 0.034
Expected rate of return in 1 year = 0.044+0.034 = 0.078
Final solution = 7.8%
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