A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected...
A one-year U.S. Treasury security has a nominal interest rate of 2.25 percent. If the expected real rate of interest is 1.5 percent, what is the expected annual inflation rate?
Homework Answers
(1+real rate)=(1+nominal rate)/(1+inflation rate)
(1+0.015)=(1+0.0225)/(1+inflation rate)
1+inflation rate=(1.0225/1.015)
inflation rate=(1.0225/1.015)-1
=0.74%(Approx).
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