If the real return on U.S. Treasury bills is 14 percent while the rate of expected inflation is anticipated to be 8 percent, then what should nominal rate of return be?

Question

Quizplus · Accepted Answer

The nominal rate of return can be calculated using the Fisher equation:

Nominal rate = Real rate + Inflation rate

In this case, Real rate = 14%, Inflation rate = 8%

Nominal rate = 14% + 8% = 22%

Therefore, the nominal rate of return should be 22%, which is closest to option C (23.12% rounded to the nearest hundredth). Option A (14%) is the real rate of return, and option B (33%) is not the correct calculation of the nominal rate.

If the Real Return on U