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Suppose the real rate is 2.8 percent and the inflation rate is 4.4 percent. What rate would you expect to see on a Treasury bill? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Treasury bill rate

Suppose the real rate is 2.8 percent and the inflation rate is 4.4 percent. What rate would you expect to see on a Treasury bill? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % Treasury bill rate

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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**Understanding Treasury Bill Rates** Suppose the real rate is 2.8 percent and the inflation rate is 4.4 percent. ### Question What rate would you expect to see on a Treasury bill? **Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).** ### Input **Treasury bill rate:** [Input Box] % This exercise requires you to calculate the expected rate on a Treasury bill by considering the given real rate and inflation rate. The formula to do this is generally the sum of the real rate and the inflation rate. However, for more precise calculations involving multiplicative effects, one might use Fisher's equation: \[ (1 + \text{nominal rate}) = (1 + \text{real rate}) \times (1 + \text{inflation rate}) \] In this case, for simplicity, you may add the rates directly as an approximation: \[ \text{Nominal rate} \approx \text{Real rate} + \text{Inflation rate} \]
Transcribed Image Text:**Understanding Treasury Bill Rates** Suppose the real rate is 2.8 percent and the inflation rate is 4.4 percent. ### Question What rate would you expect to see on a Treasury bill? **Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).** ### Input **Treasury bill rate:** [Input Box] % This exercise requires you to calculate the expected rate on a Treasury bill by considering the given real rate and inflation rate. The formula to do this is generally the sum of the real rate and the inflation rate. However, for more precise calculations involving multiplicative effects, one might use Fisher's equation: \[ (1 + \text{nominal rate}) = (1 + \text{real rate}) \times (1 + \text{inflation rate}) \] In this case, for simplicity, you may add the rates directly as an approximation: \[ \text{Nominal rate} \approx \text{Real rate} + \text{Inflation rate} \]
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