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Suppose 1-Year T-Bills Currently Yield 7

Question 53

Multiple Choice

Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% 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.(Round your final answer to 2 decimal places. )


A) 4.51%
B) 4.85%
C) 4.90%
D) 3.87%
E) 3.77%

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