Answer:
1.0 percent
Explanation:
Expected real rate of return can be described as the proportion of the annual return or profit from an investment after deducting inflation.
The purpose of the real rate of return is to show the accurate and actual purchasing power of a certain sum of money over a period of time.
An investor can therefore know what is the real return of a nominal return when the nominal interest is adjusted for inflation.
From the question, we have:
Interest rate on 10-year Treasury note = 2.5 percent
Expected Inflation = 1.5 percent
Therefore, the expected real rate of return on the 10-year Treasury note is derived by subtracting the 1.5 percent expected Inflation from the 2.5 percent interest rate on 10-year Treasury note as follows:
Expected real rate of return on the 10-year Treasury note = 2.5 - 1.5
= 1.0 percent
Therefore, the expected real rate of return on the 10-year U.S. Treasury note is 1.0 percent.
All the best.
