In the Focus Box titled "The Vocabulary of Bond Markets," the concept of an inflation-indexed bond was introduced. Although such bonds are typically long in maturity, the example that follows compares a standard one-year Treasury bill with an inflation-indexed one-year Treasury bill.

a. A standard one-year \(\$ 100\) Treasury bill promises to pay \(\$ 100\) in one year and sells for \(\$ P_{B}\) today. What is the nominal interest rate on the Treasury bill?

b. Suppose that the price level is \(P\) today and \(P(t+1)\) next year and the bill sells for \(\$ P_{B}\) today. What is the real interest rate on the Treasury bill?

c. An indexed Treasury bill pays a larger payment next year to compensate for inflation between the date of issue and the date of payment. If the bill is issued today when the price index is 100 , what will be the payment next year if the price index has risen to 110 ? What is the real interest rate on an indexed Treasury bill that sells for \(\$ P_{\mathrm{B}}\) today?

d. If you are an investor, will you want to hold indexed or non-indexed bonds?