Question

Treasury Bills yielded a nominal average return over 86 years of 3.5% versus an average inflation rate of 3.0% over the same period. This makes the real return on T-bills approximately equal to _____.

Answer 1

The real return is approximately 0.5%

Step-by-step explanation:

The real return can deduced from nominal return formula given below

Nominal return=real return+inflation rate

real return=nominal return-inflation rate

nominal return is 3.5%

inflation rate 3.0%

real return=3.5%-3.0%

real return=0.5%

The actual return on the treasury bills is 0.5% because the extra 3% is just a compensation rate for inflation over the duration of the investment ,but since it is a treasury bill, the risk of loss of investment is virtually non-existent

Answer 2

0.5%

Step-by-step explanation:

The real rate of return is the nominal rate of return adjusted for inflation.

Real rate of return = nominal rate of return - inflation rate

3.5% - 3% = 0.5%

I hope my answer helps you