3. Which one of the following statements is correct? A. Treasury bill returns te

Question

3. Which one of the following statements is correct? A. Treasury bill returns tend to vary in direct relation to inflation rates. B. Short-term interest rates are affected by future inflation expectations. C. All real interest rates will be positive as long as the inflation rate is positive. D. The Fisher hypothesis advocates that real interest rates follow inflation rates. 4. What type of yield is the asked yield on a Treasury bill? A. Bid-ask yield B. Discount yield C. Zero coupon yield D. Bond equivalent yield

Explanation / Answer

Ans 1) A. High inflation decrease treasury bill prices thus increasing returns

Others are wrong as:

Short term interest rate are finanlized by central bank

Real Interest = Nominal - inflation, so if inflation > nominal real interest rates are -ve

Fischer advocates nominal interest rate moves wrt to inflation

Ans 2) discount yield as trasury bills aresold at discount

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