Question

Assume the expected inflation rate in Switzerland is 2.2 percent while it is 1.6 percent in the U.S. Also assume a risk-free asset in the U.S. is yielding 3.7 percent. What real rate of return should you expect on a risk-free Swiss security

Answer 1

Answer:

1.5%

Explanation:

Below is the given values:

The expected inflation rate in Switzerland = 2.2%

The expected inflation rate in the U.S. = 1.6%

The risk-free yielding = 3.7%

The real rate of return on Swiss security = Risk-free yielding - Expected inflation in Switzerland

The real rate of return on Swiss security = 3.7% - 2.2%

The real rate of return on Swiss security = 1.5%