Question

suppose the real rate is 1.9 percent and the inflation rate is 3.1 percent. what rate would you expect to see on a treasury bill?

Answer 1

Answer:

12.48%

Explanation:

The real rate is 1.9%

= 1.9/100

= 0.019

The inflation rate is 3.1%

= 3.1/100

= 0.031

Therefore the rate on the treasury bill can be calculated as follows

= (1+0.031)(1+0.019)-1

= (1.031×1.019)-1

= 1.1248-1

= 0.1248×100

= 12.48%

Hence the rate that is expected to be seen on the treasury bill is 12.48%