Suppose the rate of return on a 10-year T-bond is 5.00% and that on a 10-year Treasury Inflation Protected Security (TIP) is 2.10%. Suppose further that the expected average rate of inflation over the next 10 years is 2.0%, that the MRP on a 10-year T-bond is 0.9%, that no MRP is required on TIPs, and that no liquidity premiums are required on any T-bonds. Given this data, what is the real risk free rate of return, r*? Disregard cross-product terms, i. e., if averaging is required, use the arithmetic average.

2.06%

Explanation:

in order to determine the real risk free rate of return we can use the following formula:

real risk free rate = [(1 + T-bond yield - T-bond maturity risk premium) / (1 + inflation rate)] -1

real risk free rate = [(1 + 5% - 0.9%) / (1 + 2%)] -1 = (1.041 / 1.02) - 1 = 1.0206 - 1 = 0.0206 = 2.06%

lbc corporation makes and sells a product called product wz. each unit of product wz requires 4.1 hours of direct labor at the rate of $20.00 per direct labor-hour. management would like you to prepare a direct labor budget for june. the company plans to sell 28,000 units of product wz in june. the finished goods inventories o

fractionally backed paper money

fiat money

paper money

metallic money