(Real

interest rates: approximation

method)

The CFO of your firm has asked you for an approximate answer to this question: What was the increase in real purchasing power associated with both 3-month Treasury bills and 30-year Treasury bonds? Assume that the current 3-month Treasury bill rate is 5.17 percent, the 30-year Treasury bond rate is7.58 percent, and the inflation rate is 2.92 percent. Also, the chief financial officer wants a short explanation should the 3-month real rate turn out to be less than the30-year real rate.