During the period 1990 to 2014,the average yield on 3-month U.S.Treasury bills was 3.04%,the average inflation rate was 2.64%,the average yield on 30-year Treasury bonds was 5.49%,and the average return on 30-year Aaa-rated corporate bonds was 6.35%.The real risk-free short-term interest rate is

Question

Quizplus · Accepted Answer

The real risk-free short-term interest rate can be approximated by subtracting the average inflation rate from the average yield on 3-month U.S. Treasury bills. Thus, 3.04% - 2.64% = 0.40%.

During the Period 1990 to 2014,the Average Yield on 3-Month