Return would you expect on one year treasury security

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Reference no: EM131497458

Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 3.30%. What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.

a. 6.53%

b. 7.21%

c. 6.80%

d. 5.30%

e. 6.46%

Reference no: EM131497458

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