Question
(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 5.4 percent, the 30-year Treasury bond rate is 7.44 percent, and the inflation rate is 2.16 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 nothing __ %. (Round to two decimal places.)
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