Suppose the real rate is 3.45 percent and the inflation rate is 2.2 percent. What rate would you expect to earn on a Treasury bill?

Question

Quizplus · Accepted Answer

The expected rate on a Treasury bill can be calculated using the Fisher equation, which states that the nominal interest rate is approximately equal to the real interest rate plus the inflation rate. Therefore, 3.45% (real rate) + 2.2% (inflation rate) = 5.65%. However, since none of the options exactly match this calculation and considering the possibility of approximation or a slight mistake in the calculation, the closest option provided is C) 5.73 percent.

Suppose the Real Rate Is 3