Q18

Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 5.90% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average. ( a) 1.33% O b) 1.17% c 1.10% O d) 1.16% O e) 1.08%