If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____.   a. 7.02%   b. 6.48%   c. 4.70%   d. 2.86%

Q: Suppose the real rate is 8 percent and the inflation rate is 2.4 percent. What rate would you expect…

A: As per  fisher equation (1+ return on treasury/required return) = (1+real rate) *(1+ inflation rate…

Q: The real risk-free rate is 2.5% and inflation is expected to be 2.75% for the next 2 years. A 2-year…

A: Given: Real risk free rate = 2.5% Inflation rate = 2.75% Return on assets = 5.95% Maturity risk…

Q: If Treasury bills are currently paying 3.05 percent and the inflation rate is 1.89 percent, what is…

A: Approximate Fischer relation is: Nominal Rate = Real rate + Inflation So, Real rate = Nominal Rate…

Q: The inflation rate in the USA is 4% and the return on a treasury bill is 6%. Find the inflation…

A: given, inflation = 4% return of treasury bond = 6%

Q: Given a yield to maturity of 0.00045629%.   Assume the yield to maturity immediately increases 1%.…

A: Original YTM = 0.00045629℅ New YTM = 1.00045629℅ Treasury bill is a short term debt instrument.…

Q: Suppose that the spot exchange rate is $1.5/£, that the beta on the £ forward market return (i.e.,…

A: The capital asset pricing model is used extensively for the valuation of stock and calculating the…

Q: Assume that in the market for reserves, the discount rate is 8% and the federal funds rate is 4.5%.…

A: Federal Reserve System the central banking system of USA. It is not the federal government part, but…

Q: If the risk-free rate is 2.2 percent, the inflation rate is 1.9 percent, and the market rate of…

A: The risk premium on the U.S. Treasury bond will be zero as it is backed by US government and as…

Q: A financial institution owns a portfolio of options on the U.S. dollar-sterling exchange rate. The…

A: The proportion of a change in the price of an underlying asset (most often marketable securities) to…

Q: 7 East Boca Co. investors require 12% nominal return and the expected inflation rate is 2%, what is…

A: The inflation rate refers to the rate at which the value of the currency decreases over time and the…

Q: uppose the real risk-free rate is 3.00%, the average expected future inflation rate is 6.60%, and a…

A: Here, Details of Ques-A: Real Risk Free Interest Rate is 3% Inflation Rate is 6.60% Maturity Risk…

Q: Assume that the nominal return on U.S. government T-bills was 10% during 20X2, when the rate of…

A: Given: Nominal rate = 10% Inflation rate = 6%

Q: Recall that on a one-year Treasury security the yield is 5.8400% and 7.0080% on a two-year Treasury…

A: Given information: Yield on a one year Treasury security : 5.84% Yield on two year Treasury security…

Q: If the risk-free rate is 2.2 percent, the inflation rate is 1.9 percent, and the market rate of…

A: The risk-free rate refers to the return rate of an investment that is not at all or at least risky…

Q: Suppose the real rate is 3.1 percent and the inflation rate is 4.7 percent. What rate would…

A: Fisher equation is used to calculate the expected return on treasury bill.

Q: The following data are gathered for: · The real risk-free rate is 1.25% · Inflation premium is…

A: Real risk free rate = 1.25% Inflation premium = 2.50% Default risk premium = 5% Liquidity premium =…

Q: Suppose we have the following Treasury bill returns and inflation rates over an eight year period:…

A: t bills year treasury bill return - avg return (return - avg return)2 formula 1 10.45% -0.72%…

Q: Differentiate between the following types of markets: physical asset vs. financial markets, spot vs.…

A: Kindly post the other two questions in a separate post.

Q: What is the amount of the risk premium on a U.S. Treasury bill if the inflation rate is 2.6 percent,…

A: Market rate = 7.4% Inflation rate = 2.6% Risk free rate = 3.1%

Q: QUESTION 4 If the rate on a one-year Treasury security is lower than the rate on a two-year treasury…

A: Treasury securities are among the safest investments because they are backed by the full faith and…

Q: The yield on a one-year Treasury security is 5.6100%, and the two-year Treasury security has a…

A: Pure expectations theory predics short term interest rate using long term interest rates.

Q: Suppose that in the market for reserves, the federal funds rate is 2.4% and the discount rate is 8%.…

A: Supply- A supply schedule is a numerical table that shows how much a company wants to sell at…

Q: The real risk-free rate is 2.00%. Inflation is expected to be 1.50% this year and 4.75% during the…

A: Real Risk Free Rate = 2% Inflation expected in year one = 1.50% Inflation expected in year two =…

Q: The real rate of interest is expected to be 3%, and the expected rate of inflation for next year is…

A: Required return on 1-year U.S. Treasury security is the sum of expected real rate of return and…

Q: Inflation and Nominal Returns Suppose the real rate is 1.8 percent and the inflation rate is 3.7…

A: Risk-free rate: This can be described as the rate of return of the asset which has zero risks.…

Q: If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is…

A: U.S. Treasury bills return is 7.02%. This is nominal rate of return on U.S. Treasury bills. Hence,…

Q: Recall that on a one-year Treasury security the yield is 5.8400% and 7.0080% on a two-year Treasury…

A: Given Information One year Treasury Yield = 5.8400% and Yield on Two Year Treasury Security =…

Q: The real risk-free rate is 2.50%. Inflation is expected to be 1.50% this year and 4.75% during the…

A: Solution:- The yield on treasury securities will be the risk free real rate of interest after the…

Q: The real risk-free rate is 2.25%. Inflation is expected to be 2.5%this year and 4.25% during the…

A: Real risk free rate=2.25%Current inflation rate=2.5%Predicted inflation rate=4.25%Maturity risk…

Q: 1. The real risk-free rate is 2.75%, and inflation is expected to be 4.00% for the next 2 years. A…

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: The market has an expected rate of return of 10.7 percent. The long-term government bond is expected…

A: Calculate the market risk premium as follows: Market risk premium = Expected return on market-U.S…

Q: The real risk-free rate is 3.5%. Inflation is expected to be 2.5% this year and 4.75% during the…

A: Real risk free rate (r*) = 3.5%Inflatiion 1 = 2.5%  Inflation 2 = 4.75%

Q: The following data are gathered for: · The real risk-free rate is 1.25% · Inflation…

A: The real risk-free rate  (RP) = 1.25%Inflation premium is constant (IP) = 2.50%Default risk premium…

Q: a. The spot price of the British pound is currently $1.50. If the risk-free interest rate on 1-year…

A: According to interest rate parity theorem, interest rate differentials are equivalent to the current…

Q: Suppose we observe the three-year Treasury security rate (1R3) to be 4.9 percent, the expected…

A: Formula for unexpected expectation theory is as follows:-   1rn =…

Q: The market has an expected rate of return of 8.0 percent. The long-term government bond is expected…

A: Market risk premium is the difference between market expected rate of return and risk free rate.…

Q: Suppose the real rate is 8.5 percent and the inflation rate is 2 percent. What rate would you expect…

A:

Q: You read in the Wall Street Journal that 30-day treasury bills are currently yielding 8%. You are…

A: An interest rate that is modified to eliminate the impacts of inflation in order to reflect the…

Q: Recall that on a one-year Treasury security the yield is 5.6100% and 6.7320% on a two-year Treasury…

A: Treasury securities refers to those government debt instruments which are issued by the United…

Q: The real risk-free rate is 3%, and inflation is expected to be 4% for the next 2 years. A 2-year…

A: MATURITY risk premium is rate above normal rate of return due to MATURITY of bond.

Q: 1. Use the February 15, 2021 U.S. Treasury quotes from TreasuryDirect shown below to calculate the…

A: Spot rate: It is the price for immediate settlement of a contract.

Q: Liquidity Premium Hypothesis Based on economists' forecasts and analysis, one-year Treasury bill…

A: Liquidity premium hypothesis basically states that investors that invest in bonds for longer time…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.