Type your question here Real Interest rate- Approximate method CFO has asked for
ID: 2703614 • Letter: T
Question
Type your question hereReal Interest rate- Approximate method
CFO has asked for approximate answer to his question. What was the increase in real purchasing power associated with both the 3- month Treasury bills and 30-year Treasury bonds? Assume the current 3-month Treasury bill rate is 4.07 %, the 30-year Treasury bond rate is 8.18 % and the inflation rate is 3.02 %. Also please choose the best explanation. The inferred real interest rate of the Treasury bill is ....% ( round to 2 decimals) The inferred real interest rate of the Treasury bond is ..% ( ruond to 2 decimals) Why does the 30 year bond exceed the treasury bill ? because the two securities are sold in different markets. because of the maturity rates demanded by the inverstors. because inflation rate only affects the long term security. because the government demands lower rates for lending short term.Explanation / Answer
The inferred real interest rate of the Treasury bill is 4.07% ( round to 2 decimals)
The inferred real interest rate of the Treasury bond is 5.16% ( ruond to 2 decimals)
Why does the 30 year bond exceed the treasury bill ?
c) because inflation rate only affects the long term security.
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