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15-07-2020
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Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 4.70% per year. What is the real risk-free rate of return, r*

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adnansoomro2019 adnansoomro2019

16-07-2020

Answer:

2.30%

Explanation:

Data has given as:

Yield for 1 year T-bill = 7.00%

Future inflation rate = 4.7%

In order to find the risk-free rate of return we need to deduct future inflation rate from the yield for the year

Risk-free Rate of return = 1 year T-bill yield - inflation

Risk-free Rate of return = 7.00% - 4.70%

Risk-free Rate of return = 2.30%

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