Ask Question
23 January, 08:50

The real risk-free rate is 3.55%, inflation is expected to be 3.60% this year, and the maturity risk premium is zero. Taking account of the cross-product term, i. e., not ignoring it, what is the equilibrium rate of return on a 1-year Treasury bond?

+5
Answers (1)
  1. 23 January, 09:16
    0
    7.15%

    Explanation:

    The formula to compute the equilibrium rate of return is shown below:

    Expected rate of return = Risk-free rate of return + expected inflation rate + (Market rate of return - Risk-free rate of return)

    = 3.55% + 3.60% + 0

    = 7.15%

    The (Market rate of return - Risk-free rate of return) is also known as market risk premium and the same is applied.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The real risk-free rate is 3.55%, inflation is expected to be 3.60% this year, and the maturity risk premium is zero. Taking account of the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers