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13 June, 11:03

If Treasury bills are currently paying 6.15 percent and the inflation rate is 2 percent, what is the approximate and the exact real rate of interest? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.) Approximate real rate % Exact real rate %

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  1. 13 June, 11:04
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    Answer and explanation

    Treasure bill = 6.15%

    Inflation rate = 2%

    From the approximate Fisher equation, Real interest rate = nominal interest rate - rate of inflation

    =6.15%-2.0%=4.15%

    The exact Fisher equation is therefore = 1.0615/1.02 = 1.0406 or 4.06%
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