Question

Suppose the real rate is 5.5 percent and the inflation rate is 2 percent. What rate would you expect to see on a Treasury bill?

Multiple Choice:

• 7.61%

• 8.75%

• 6.47%

• 8.37%

• 6.85%

Answer 1

Treasury bill rate is equal to the nominal rate
Nominal Rate = [(1 + rr) x (1 + ir)] - 1
Where,
rr= real rate
ir= inflation rate
=[(1+0.055)*(1+0.02)]-1
=7.61%
Correct Option: FIRST

Answer 2

ANSWER :

First Option :  7.61% 

Rate on treasury bill 

= (1 + R)(1 +I) - 1 

= (1 + 0.055)(1 + 0.02) - 1

= 0.0761

= 7.61%