Suppose the real rate is 2.9 percent and the inflation rate is 4.5 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 0/
Suppose the real rate is 2.9 percent and the inflation rate is 4.5 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 0/
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
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Question
L10
![Suppose the real rate is 2.9 percent and the inflation rate is 4.5 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.)*
[Input box for Treasury bill rate]
**Explanation:**
The image presents a question related to calculating the nominal interest rate on a Treasury bill. The student is asked to use the given real interest rate (2.9%) and the inflation rate (4.5%) to find the expected nominal rate on a Treasury bill. This is a common exercise in finance and economics education to apply the Fisher equation, which relates real rates, nominal rates, and inflation.
The student should calculate:
\[ \text{Nominal Rate} = (1 + \text{Real Rate}) \times (1 + \text{Inflation Rate}) - 1 \]
Convert the real and inflation rates to their decimal forms (0.029 and 0.045), apply the formula, and then express the result as a percentage rounded to two decimal places.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd2e6bca0-5751-4e3b-9150-515606817feb%2Fca829951-a089-4dac-b813-210ffc297fbb%2F7s4p4d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose the real rate is 2.9 percent and the inflation rate is 4.5 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.)*
[Input box for Treasury bill rate]
**Explanation:**
The image presents a question related to calculating the nominal interest rate on a Treasury bill. The student is asked to use the given real interest rate (2.9%) and the inflation rate (4.5%) to find the expected nominal rate on a Treasury bill. This is a common exercise in finance and economics education to apply the Fisher equation, which relates real rates, nominal rates, and inflation.
The student should calculate:
\[ \text{Nominal Rate} = (1 + \text{Real Rate}) \times (1 + \text{Inflation Rate}) - 1 \]
Convert the real and inflation rates to their decimal forms (0.029 and 0.045), apply the formula, and then express the result as a percentage rounded to two decimal places.
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