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
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
Problem 1PS
Related questions
Question
100%
20EM
![**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:
\[ \text{Nominal rate} \approx \text{Real rate} + \text{Inflation rate} \]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F94751456-3c40-498d-a8de-464feac92584%2F9cnkniu_processed.png&w=3840&q=75)
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:
\[ \text{Nominal rate} \approx \text{Real rate} + \text{Inflation rate} \]
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education