Assume investors expect a 2.0 percent real rate of return over the

next year. If inflation is expected to be 0.5 percent, what is the
expected nominal interest rate for a one-year U.S. Treasury security?

To determine the expected nominal interest rate, we need to add the expected inflation rate to the expected real rate of return. In this case, the expected real rate of return is 2.0 percent and the expected inflation rate is 0.5 percent.

To calculate the expected nominal interest rate, simply add the two percentages together:

Expected nominal interest rate = Expected real rate of return + Expected inflation rate

Expected nominal interest rate = 2.0% + 0.5%

Expected nominal interest rate = 2.5%

Therefore, the expected nominal interest rate for a one-year U.S. Treasury security would be 2.5%.