Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is ex

Question

Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered, i.e., if averaging is required, use the geometric average. a. 3.87% b. 4.06% c. 4.26% d. 4.48% e. 3.68% Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered, i.e., if averaging is required, use the geometric average. a. 3.87% b. 4.06% c. 4.26% d. 4.48% e. 3.68%

Explanation / Answer

c) 4.26%

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