Given a nominal interest rate of 7% and an inflation rate of 2.5%, what is the real interest rate?

A.

4.4%

B.

9.5%

C.

7%

D.

2.5%

E.

4.0%

Investors may be willing to invest in U.S Treasury Bills trading with a negative yield because:

A.

The risk of holding cash in a financial institution is greater than the short-term loss from the investment in T-Bill.

B.

The phenomenon indicates there is confidence that an economic upturn is imminent.

C.

Losses generated create a significant tax savings for the investor.

D.

Alternative investments with a positive yield are not available.

E.

Financial institutions are refusing to accept cash deposits from legitimate investors.