The Real Risk-Free Rate Is 3

question 6

Multiple Choice

The real risk-free rate is 3.55%,inflation is expected to be 2.85% this year,and the maturity risk premium is zero.Taking account of the cross-product term,i.e. ,not ignoring it,what is the equilibrium rate of return on a 1-year Treasury bond? (Round your final answer to 3 decimal places. )

• A) 6.111%
• B) 6.566%
• C) 7.216%
• D) 6.501%
• E) 5.331%

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Definitions:

Marketable Securities

Financial assets that can be quickly converted into cash at a known price.

Capacity

The maximum amount that something can contain or produce.

Projected Cash Flows

This refers to the forecasted movement of money in and out of a business over a specific period, helping to estimate its financial health and operational viability.

Capacity

The maximum level of output that a company can sustain to produce in a given period under normal conditions.