<u>The Equilibrium rate of return on a 1-year Treasury bond formula is 7.278%
</u>
Further Explanation:
Treasury bond: It is a debt security issued by the government in which the owner receives interest until maturity, and the principal amount is paid at the maturity. This type of bonds is issued by the government in order to raise the funds from the public. The government uses the fund in the public interest. The formula for calculating the equilibrium rate of return is:
Equilibrium rate of return = (1 + r) (1 + i) - 1
Where,
r = real risk-free rate
i = inflation expected
Calculate the equilibrium rate of return:
Equilibrium rate of return = (1 + 0.0355) (1 + 0.036) – 1
= 1.07278 – 1
= 0.07278 or 7.278%
<u>Therefore, the equilibrium rate of return on a 1-year treasury bond is 7.278%
.</u>
Learn more:
1. Learn more about the tax-free bond
brainly.com/question/1442514
2. Learn more about the interest value
brainly.com/question/5993991
3. Learn more about the trade-off
brainly.com/question/5057443
Answer details:
Grade: High School
Subject: Financial Management
Chapter: Risk and return
Keywords: The, real, risk-free, rate, is, 3.55%, inflation, is, expected, to, be, 3.60%, this, year, the, maturity, risk, premium, is, zero, the, cross-product, term, the, equilibrium, rate, of return, on a 1-year, treasury, bond.