What was increase in real purchasing power associated

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Reference no: EM132061196

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 4.85 percent, the 30-year Treasury bond rate is 7.63 percent, and the inflation rate is 3.14 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 place)

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.)

A.Yes, the 30-year real interest rate should exceed the 3-month real interest rate because the two securities are sold in different markets.

B.Yes, the 30-year real interest rate should exceed the 3-month real interest rate because of the maturity premium demanded by investors.

C. 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.

D.Yes, the 30-year real interest rate should exceed the 3-month real interest rate because inflation only affects the long-term security.

Reference no: EM132061196

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