Question 3: Suppose the real rate is 1.88 percent and the inflation rate is 0.89 percent. What rate would you expect to earn on a Treasury bill? Use exact formula and answer in percent to two decimals.
(1+real rate)=(1+nominal rate)/(1+inflation rate)
(1+0.0188)=(1+nominal rate)/(1+0.0089)
1+nominal rate=(1.0188*1.0089)
nominal rate=(1.0188*1.0089)-1
which is equal to
=2.79%(Approx).
Question 3: Suppose the real rate is 1.88 percent and the inflation rate is 0.89 percent....
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