Question

Suppose the real rate is 3.2 percent and the inflation rate is 4.8 percent. What rate would you expect to see on a Treasury bill

Answer 1

The rate that can be expected on a Treasury bill is 5.41%.

Explanation:

As per Fisher's equation:

Nominal rate = (1 + Real rate) * (1 + Inflation rate) - 1

Nominal rate = (1 + 0.0365) * (1 + 0.017) - 1

Nominal rate = 5.41%

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