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) static economy.
C) change in the expected rate of inflation.
D) change in the real rate of interest.
E) change in risk aversion.

Question

Quizplus · Accepted Answer

The yield on a T-bill is influenced by several factors including the expected rate of inflation, which is the rate at which the purchasing power of money is expected to decline over time. If there is a change in the expected rate of inflation, it can lead to a significant change in the yield of a T-bill. For example, if inflation is expected to increase, investors require a higher yield to compensate for the decrease in purchasing power of money. Therefore, the change in yield is most likely attributable to a change in the expected rate of inflation.

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