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(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 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 5.13 percent, the 30-year Treasury bond rate is 8.24 percent, and the inflation rate is 2.34 percent. Also, the chief financial officer wants a short explanation should the 3-month real rate turn out to be less than the 30-year real rate. The inferred real interest rate of Treasury bills is %. (Round to two decimal places.) The inferred real interest rate of Treasury bonds is %. (Round to two decimal places.) Should the 3-month real interest rate turn out to be less than the 30-year real interest rate? (Select the best choice below.) O A. Yes, the 30-year real interest rate should exceed the 3-month real interest rate because inflation only affects the long-term security. OB. Yes, the 30-year real interest rate should exceed the 3-month real interest rate because of the maturity premium demanded by investors. OC. Yes, the 30-year real interest rate should exceed the 3-month real interest rate because the goverment demands lower rates for lending short term. OD. Yes, the 30-year real interest rate should exceed the 3-month real interest rate because the two securities are sold in different markets
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