If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____.   a. 7.02%   b. 6.48%   c. 4.70%   d. 2.86%

Q: Using the risk free rate of return formula what is the risk free rate of return in the US and using…

A: The risk-free rate is the rate at which your investment is safest and there are nil chances for it…

Q: f expected inflation declines by 2%, what should happen to nominal interest rates according to the…

A: As per fisher, Nominal interest rate (N) = Inflation (I) + Real Interest Rate (R) R is constant in…

Q: Consider the following table for a seven-year period: Returns U.S. Treasury Year Bills Inflation 1…

A: The real return refers to the return that the investment provides to its holders after the effect of…

Q: You observe the following term structure for Treasury bills: Yield (%) 5.1 5.4 5.6 5.8 6.1 Maturity…

A: Treasury securities refer to the debt instruments issued by the U.S. Department of the Treasury to…

Q: What is the beta of a U.S. Treasury bill? O 1.0 negative 1.0 O Unknown

A: US treasury bills are issued by the US government. They are issued at low interest rate. This bill…

Q: Suppose that the spot exchange rate is $1.5/£, that the beta on the £ forward market return (i.e.,…

A: The capital asset pricing model is used extensively for the valuation of stock and calculating the…

Q: Consider the following information: State of Economy Recession Boom Probability of State of Economy…

A: The expected return refers to the weighted average profits that the investment provides after…

Q: 7 How much would an investor need to receive in nominal return if he desires a real return of 4% and…

A: Nominal rate of return is the rate that is calculated after taking into account the effect of…

Q: f single-A credit spreads are 45bps, and 5 year treasury yields are 8% (annual), wha hould an…

A: Price of bond is present value of the of bond par and coupon payment.

Q: The real risk-free rate is 2.50%. Inflation is expected to be 2.00% this year and 4.75% during the…

A: Given Information: Real Risk free rate (r) = 2.5% Maturity Risk Premium (MRP) = 0 Inflation this…

Q: Calculate the nominal rate of interest given a real rate of 10% and an inflation rate of 6%. A.…

A: Given: Real rate = 10% Inflation rate = 6%

Q: Imagine that in a given point in time, t, we observe the following yields: i1t = 2%, 2t = 4%, and…

A: We will apply the principle of Expectations theory and we want to calculate the t+2 means at the…

Q: Required information As indicated, some of the cash flows are expressed in future (then-current)…

A: The present worth of estimated cash flows is a method used to calculate the present value of a…

Q: (i) Write down an equation for the three main components of the nominal long term interest rate on a…

A: With real interest rate (R) and the expected inflation rate (h), the nominal rate (i) is expressed…

Q: Q#9. Suppose you and most other investors expect the inflation rate to be 7% next year, to fall to…

A: The term structure of interest rates: The term structure of interest rates gives the interest rate…

Q: View Policies Current Attempt in Progress How strong is the correlation between the inflation rate…

A: This coefficient measures the linear correlation between two variables, providing a value between -1…

Q: QUESTION 18 Suppose that the 1-year, 2-year, 3-year, and 4-year spot rates are observed as follows:…

A: Liquidity Preference Theory and Expected ReturnThe liquidity preference theory suggests that…

Q: A recent edition of The Wall Street Journal reported interest rates of 6.25 percent, 6.60 percent,…

A: Interest rate for 3-year Treasury security, r3 = 6.25%Interest rate for 4-year Treasury security, r4…

Q: absolute

A: Formula for mean absolute forecast error is: Predicted value - Realized value/Realized value…

Q: Consider the following information: State of Economy Recession Boom Probability of State of Economy…

A: Expected return = Sum of ( Rate of return x Probability of the return)=>Expected return =(Rate of…

Q: lation and interest rates What would you expect the nominal rate of interest to be if the real rate…

A: Nominal interest rate is rate which includes both real return and inflation and generally more than…

Q: A 8 Fisher Equation: i= r+ n° You have $10,000 in a bond fund with an average yield of 6%. Expected…

A: Irving Fisher is the economists on whose the below mentioned equation is used to determine the…

Q: 2 3 4 5 Term in years: Rate: 1 1.8% 2.25% 2.30% 2.66% 3.13% The table above shows the interest rates…

A: Here,Term in years:12345Rate:1.8%2.25%2.30%2.66%3.13%Initial Investment = $11,000To Find:Present…

Q: None

A: Step 1: Identify Components: Determine the given rates for each year and the corresponding liquidity…

Q: am. 116.

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Q: QUESTION 4 If the rate on a one-year Treasury security is lower than the rate on a two-year treasury…

A: Treasury securities are among the safest investments because they are backed by the full faith and…

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A: A loan payment is a regularly scheduled payment made by a borrower to a lender in order to repay the…

Q: On March 11, the existing or current (spot) 1-, 2-, 3-, and 4-year zero-coupon Treasury security…

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Q: Suppose today is January 2, 2022, and investors expect the annual nominal risk-free interest rates…

A: One year return four years from now (1r1) = (1+r5)^5 / (1+r4)^4 -1   where r5 = yield to maturity…

Q: 2. Canadian Treasury bills are yielding 2.81%. Inflation is 2.45%. What is the real rate of return…

A: Real interest rate is that rate of interest which does not include the inflation effect. If we…

Q: An analyst is evaluating securities in a developing nation where the inflation rate is very high. As…

A: Yield is a percentage measure of the return on an investment over a specific period of time. Yield…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.