If a significant change is noted in the yield of a T-bill,the change is most likely attributable to
A) A downturn in the economy.
B) A static economy.
C) A change in the expected rate of inflation.
D) A change in the real rate of interest.
E) A change in risk aversion.

Question

Quizplus · Accepted Answer

The yield of a T-bill is closely tied to the expected rate of inflation. If the expected rate of inflation increases, the yield on T-bills will also increase to compensate investors for the loss of purchasing power caused by inflation. Conversely, if the expected rate of inflation decreases, the yield on T-bills will decrease as well. Therefore, a significant change in the yield of a T-bill can most likely be attributed to a change in the expected rate of inflation.

If a Significant Change Is Noted in the Yield of a T-Bill,the