Assume investors expect a 2.0% real rate of return over the next year. If inflation is expected to be 5.0%, what is the expected nominal rate dor one year US Treasury security?
Assume investors expect a 2.0% real rate of return over the next year. If inflation is expected to be 5.0%, what is the expected nominal rate dor one year US Treasury security?
Assume investors expect a 2.0% real rate of return over the next year. If inflation is expected to be 5.0%, what is the expected nominal rate dor one year US Treasury security?
To calculate the expected nominal rate for a one-year US Treasury security, we need to consider the expected real rate of return and the expected inflation rate.
The nominal rate is the sum of the real rate of return and the inflation rate. In this case, the real rate of return is 2.0% and the expected inflation is 5.0%.
So, to find the expected nominal rate, we add the real rate of return and the inflation rate:
Nominal Rate = Real Rate of Return + Inflation Rate
Nominal Rate = 2.0% + 5.0%
Nominal Rate = 7.0%
Therefore, the expected nominal rate for a one-year US Treasury security is 7.0%.