Question

Ai​ Lun, a management trainee at a large New Yorkdashbased ​bank, is trying to estimate the real rate of return expected by investors. He notes that the 3dashmonth Tdashbill currently yields 3​ percent, and consumer prices have been rising steadily at a​ 2% rate for several years. What should Ai​ Lun's estimate of the real rate​ be?

Answer 1

Answer:

Ai​ Lun estimate that  real rate would be 1%

Explanation:

The Formula for the Real Rate of Return is

Real rate of return =Nominal interest rate - Inflation rate

In this case ,

Nominal interest rate =3%

Inflation rate  is given by the rising of the consumer prices =2%

So,  

Real rate of return =3% - 2%

Real rate of return=1%