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
Using the risk free
![**Risk Free Rate of Return Formula**
The formula for calculating the risk-free rate of return is as follows:
\[
\text{Risk Free Rate of Return} = \left( \frac{1 + \text{Government Bond Rate}}{1 + \text{Inflation Rate}} \right) - 1
\]
### Explanation:
- **Government Bond Rate**: This is the interest rate paid by government bonds, which are considered free of default risk.
- **Inflation Rate**: A measure of the rate at which the general level of prices for goods and services is rising.
### Visual Elements:
- **Icons**: The image includes icons, such as a calculator and graphs, suggesting calculation and financial data analysis.
- **Bar Graph**: The bar graph icon represents statistical data comparison.
- **Pie Chart**: The pie chart icon suggests proportional data representation.
This formula helps investors understand the return they can expect on an investment with no risk of financial loss.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00a037c4-5b9d-4bd7-93b6-05cea88ccf16%2F0007ef8c-9407-4045-8f89-686c300f6652%2Fbi0d1h4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Risk Free Rate of Return Formula**
The formula for calculating the risk-free rate of return is as follows:
\[
\text{Risk Free Rate of Return} = \left( \frac{1 + \text{Government Bond Rate}}{1 + \text{Inflation Rate}} \right) - 1
\]
### Explanation:
- **Government Bond Rate**: This is the interest rate paid by government bonds, which are considered free of default risk.
- **Inflation Rate**: A measure of the rate at which the general level of prices for goods and services is rising.
### Visual Elements:
- **Icons**: The image includes icons, such as a calculator and graphs, suggesting calculation and financial data analysis.
- **Bar Graph**: The bar graph icon represents statistical data comparison.
- **Pie Chart**: The pie chart icon suggests proportional data representation.
This formula helps investors understand the return they can expect on an investment with no risk of financial loss.
](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00a037c4-5b9d-4bd7-93b6-05cea88ccf16%2F0007ef8c-9407-4045-8f89-686c300f6652%2Fqzv668a_processed.png&w=3840&q=75)
Transcribed Image Text:**U.S. Treasury Yields**
The table below presents current U.S. Treasury Yields as of August 2, 2020. Treasury yields are the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
| Maturity | Last Yield | Previous Yield |
|----------|------------|----------------|
| 3 Month | 0.08% | 0.08% |
| 5 Year | 0.38% | 0.39% |
| 10 Year | 0.86% | 0.87% |
| 30 Year | 1.60% | 1.63% |
**Explanation of the Table:**
- **Maturity:** The period after which the bond reaches its due date.
- **Last Yield:** The most recent percentage yield on the bond.
- **Previous Yield:** The percentage yield recorded previously.
This data is sourced from CNN.com’s Money section, providing insights into financial markets and instruments.
**Additional Resource**
For further details, visit: [Bonds and Rates - CNNMoney - CNN Business](https://www.cnn.com/money/data/bonds)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
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