Question

What is the nominal interest rate (k) of a 5-year U.S. Treasury bond with a real risk-free rate of interest of 1% and inflation expected to be at 3.5% per year

Answer 1

The nominal interest rate is 4.50%

Step-by-step explanation:

Nominal interest=real interest rate+inflation rate

The real interest rate is the return earned by an investor without considering the inflation rate in the economy which is 1%

inflation rate is the movement in prices of goods and services in the economy i.e 3.5%

nominal interest rate=1%+3.5%

nominal interest rate=4.5%