If the Return on U

question 81

Multiple Choice

If the return on U.S. Treasury bills is 7.02%, the risk premium is 2.32%, and the inflation rate is 4.16%, then the real rate of return is ____.

• A) 2.86%
• B) 7.02%
• C) 4.70%
• D) 6.48%

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Definitions:

Interest Rates

The expense incurred when taking out a loan, usually shown as a percent of the total amount loaned.

Federal Funds Market

A U.S. financial market allowing banks to borrow and lend excess reserves to each other, usually overnight, at an interest rate called the federal funds rate.

Discount Window

The discount window is a central banking facility that allows financial institutions to borrow reserves, usually short-term, at a predetermined interest rate, to maintain liquidity.

Negative Excess Reserves

Refers to a situation where a bank's actual reserves fall short of the required reserves; although not typical, it would indicate financial stress or unusual circumstances.