HomeworkLib
Question

You are considering investing money in Treasury bills and wondering what the real​ risk-free rate of...

You are considering investing money in Treasury bills and wondering what the real​ risk-free rate of interest is.​ Currently, Treasury bills are yielding 7.0%

and the future inflation rate is expected to be 4.5% per year. Ignoring the cross product between the real rate of interest and the inflation​ rate, what is the real​ risk-free rate of​ interest?

The real​ risk-free rate of interest is _% round to one decimal place

business   finance   
1 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

✔ Recommended Answer
Answer #2

SOLUTION :


We need to find out the approximate real rate , since product of treasury rate and inflation rate is ignored.


Approximate real rate 

= Treasury bill rate - Inflation rate 

= 7% - 4.5%

= 2.5  (ANSWER). 

answered by: Tulsiram Garg
0 0
Add a comment
Answer #1

The real risk-free rate of interest = Treasury yield - Inflation rate

= 7.0 - 4.5

= 2.5% Answer

0 0
Add a comment
Know the answer?
Add Answer to:
You are considering investing money in Treasury bills and wondering what the real​ risk-free rate of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • ​(Real interest​ rates: approximation method​) You are considering investing money in Treasury bills and wondering what...

    ​(Real interest​ rates: approximation method​) You are considering investing money in Treasury bills and wondering what the real​ risk-free rate of interest is.​ Currently, Treasury bills are yielding 5.6 % and the future inflation rate is expected to be 3.3 %) per year. Ignoring the cross product between the real rate of interest and the inflation​ rate, what is the real​ risk-free rate of​ interest? The real​ risk-free rate of interest is nothing​____ %. ​(Round to one decimal​ place.)

  • ​(Real interest​ rates: approximation method​) If the real​ risk-free rate of interest is 4.4 %4.4% and...

    ​(Real interest​ rates: approximation method​) If the real​ risk-free rate of interest is 4.4 %4.4% and the rate of inflation is expected to be constant at a level of 3.4 %3.4%​, what would you expect​ 1-year Treasury bills to return if you ignore the cross product between the real rate of interest and the inflation​ rate? The expected rate of return on​ 1-year Treasury bills is nothing​%. ​(Round to one decimal​ place.)

  • The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75%...

    The real risk-free rate is 2.5% and inflation is expected to be MATURITY RISK PREMIUM 2.75% for the next 2 years. A 2-year Treasury security yields 5.55%. What is the maturity risk premium for the 2-year security? 65 6-6 INFLATION CROSS-PRODUCT An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free...

  • An investor currently has all of his wealth in Treasury bills. He is considering investing one-third...

    An investor currently has all of his wealth in Treasury bills. He is considering investing one-third of his funds in General Electric, whose beta is 1.5, with the remainder left in Treasury bills. The expected risk-free rate (Treasury bills) is 4 percent and the market risk premium is 5.1 percent. Determine the beta and the expected return on the proposed portfolio. Round your answers to two decimal places. Portfolio's Beta: Portfolio's Expected Return:   %

  • The real risk-free rate is 2.55%, inflation is expected to be 2.15% this year, and the...

    The real risk-free rate is 2.55%, inflation is expected to be 2.15% this year, and the maturity risk premium is zero. Taking account of the cross-product term, i.e., not ignoring it, what is the equilibrium rate of return on a 1-year Treasury bond? What would it be if the approximation method is used? Show work and 4 decimals.

  • 6-2 REAL RISK-FREE RATE You read in The Wall Street Journal that 30-day T-bills are currently...

    6-2 REAL RISK-FREE RATE You read in The Wall Street Journal that 30-day T-bills are currently yielding 5.8%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premiums: • Inflation premium = 3.25% • Liquidity premium = 0.6% • Maturity risk premium = 1.85% • Default risk premium = 2.15% On the basis of these data, what is the real risk-free rate of return?

  • The​ nominal, risk-free rate on​ T-bills recently is 1.95​%. If the real rate of interest is...

    The​ nominal, risk-free rate on​ T-bills recently is 1.95​%. If the real rate of interest is 0.75​%, what is the expected level of​ inflation?

  • Maturity Risk Premium The real risk-free rate is 2%, and inflation is expected to be 4%...

    Maturity Risk Premium The real risk-free rate is 2%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 7.0%. What is the maturity risk premium for the 2- year security? Round your answer to one decimal place. 0.92 Hilde Feedback Incorrect

  • Suppose the real risk-free rate is 1.50% and the future rate of inflation is expected to...

    Suppose the real risk-free rate is 1.50% and the future rate of inflation is expected to be constant at 2.30%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average?

  • Expert home / study / business/finance / finance questions and answers / a the real risk-free...

    Expert home / study / business/finance / finance questions and answers / a the real risk-free rate of interest, r*, is 3%, and it i And Question: A. The real risk-free rate of interest, r*, is 3%; and i A. The real risk-free rate of interest, r*. is 3%; and it is expected to remain constant over time. Inflation is expected to be 3% per year for the next 3 years and 4% per year for the next 5 years....

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT