suppose the real risk - free is 3.50% and the future rate of inflation is expected to be constant at 6.80% . What rate of return would you expect on a 1 yr Treasury security , assuming the pure expectations theory is valid? Disregard cross- product terms, i.e., if averaging is required use the arithmetic average.

To determine the rate of return on a 1-year Treasury security using the pure expectations theory, we need to add the real risk-free rate and the expected inflation rate.

In this case, the real risk-free rate is given as 3.50% and the expected inflation rate is 6.80%.

Step 1: Convert the percent values to decimal form:
Real risk-free rate = 3.50% = 0.035
Expected inflation rate = 6.80% = 0.068

Step 2: Add the two rates together:
Rate of return = Real risk-free rate + Expected inflation rate
Rate of return = 0.035 + 0.068

Step 3: Calculate the sum:
Rate of return = 0.103

Step 4: Convert the decimal back to a percentage to get the final result:
Rate of return = 10.30%

Therefore, based on the pure expectations theory, you would expect a rate of return of 10.30% on a 1-year Treasury security.

To calculate the rate of return on a 1-year Treasury security using the pure expectations theory, you need to add the real risk-free rate and the expected inflation rate.

1. Start with the given information:
- Real risk-free rate = 3.50%
- Expected inflation rate = 6.80%

2. Add the real risk-free rate and the expected inflation rate:
Rate of return = Real risk-free rate + Expected inflation rate

Rate of return = 3.50% + 6.80%

3. Calculate the rate of return:
Rate of return = 10.30%

Therefore, you would expect a rate of return of 10.30% on a 1-year Treasury security, assuming the pure expectations theory is valid.